Hope you stepped into 2021 with the right foot.
January is nearly over, so we will go directly to the heart of the matter: why are there no IPOs in our region? And what should be done so we have more of them?
We got a lot of startups with a small market cap and consolidation of the market through acquisitions is nowadays trendier than IPOs. Creating one unified startup market across the region could be a solution.



Middle East vs. startup IPOs


Globally speaking, startup IPOs definitely didn’t take any sick leave last year. On the contrary—it was a wild ride: Airbnb, Snowflake, DoorDash… Well, the 3 biggest tech IPOs ever happened in 2020. Compared to 2019, last year brought a strong IPO flurry. To be followed by more flurry in 2021. Why?


There are countless tech companies spread across many sectors and industries, each offering a solution to a problem. Globalization and digitization are their driving forces. As a result, their growth can’t go unnoticed by investors.


What’s happening on the international scene is that many tech startups are receiving higher valuations than they would have in the past and if they remained private. Investor confidence is there and the perceived risk is small. For now.


When it comes to the regional IPOs, Saudi food delivery startup Jahez is planning to go public this year. Still, I think it’s fair to say that our region is rather failing at incubating and nurturing business giants. So, here’s the puzzle to kick off this year: how come we don’t have (startup) IPOs in the Middle East?


Let’s look at the puzzle piece by piece:


  • Age matters. Most of our regional tech startups are simply too young to go public.

  • Type of ownership.Family-owned businesses constitute a big part of the private sector in the region… and they prefer to remain private.



    • Internal governance. Startups must be well-structured and provide immaculate and transparent reporting. They must be able to handle the demands of going public.

    • Adequate management. International investors have a certain standard for who should be in the company management and what kind of education/experience these individuals should possess.

    • Market outreach. If we consider our region as one whole market, it is still very fragmented which negatively impacts the startups’ abilities to scale up. Including regional stock markets in international indices will help provide the required exposure.

    • Regional politics & economy. Political instability and unclear economic planning push international investors away.

    • Profitability. Though IPOs by unprofitable companies (such as Uber or Airbnb) are nowadays very common, many regional markets around the Middle East doesn’t allow listing unless the business achieved profitability.

    • It’s expensive. Right now, there is so much capital available at cheaper rates that opting for an IPO may simply not be worth it for the business.

    • Illiquidity in secondary markets. The very low liquidity in existing secondary markets in the MENA may deter investors to invest in companies that plan to list in those markets.

    • Regulators & responsibilities. There is a lack of benefits when listing companies due to the ongoing and growing burdens/responsibilities that listed companies have to go through. Plus, headache from regulators. Panadol won’t fix that. (P.S. That’s not to say that our local regulators are stricter than their international counterparts.)



    • Protecting secrets. When listing and going through the required reporting process, startups’ details such as their “secret sauce” are exposed and competitors can take advantage of this…


Healthy IPOs will start happening in the Middle East more often if we (and our governments) allow ourselves to nurture and support companies that address local/regional problems and needs. And we got plenty of such companies.


A possible solution are small cap IPOs—IPOs of companies with a relatively small market cap ($50m – $1bn). The profitability requirement should not be adhered to, since many of the tech startups are focused on growth until scale is achieved (only then profitability arrives). Many investors want to invest when those startups are at the hyper growth. More risk, more return. For all that, we need to educate investors and show the opportunities in the listed companies.


A MENA small cap market would bring startups from around the region in one place, thus creating one unified startup market for all MENA countries where it would be easy for investors to invest. There would be a good volume of startups (options to invest in) and investors would be not only local but regional. What do you say?


TL;DR (too long; didn’t read)  
We see a lot of startup IPOs internationally but barely any in the Middle East. How come? This is an emerging market with startups of a small market cap. Also, there is so much available capital that going public is a very expensive option compared to other sources of liquidity. However,promoting small cap IPOs as well as creating one unified startup market across the region could finally bring some IPO flurry into the Middle East.



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Happy and healthy from ours to yours!





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