The three-day MENA IPO Summit Series - Dubai Edition, convened by the Dubai Financial Market, reinforced that this market will be one of world's most active for new IPOs and listings this year.
By convening regional leaders from across the financial and ESG community, the event enabled discussions and learnings that will support the continued dynamic development of Dubai’s thriving capital markets ecosystem in 2023. Here are our top three takeaways:
1. The region’s standout growth trajectory is driving cross-sector opportunities in UAE capital markets
Against a backdrop of recessionary – or near-recessionary – forecasts across the U.S. and Europe, the MENA region’s buoyant economic and capital market landscape is powering up.
2022 was a record year for both trade volumes and capital inflows into MENA , driving a sharp increase in liquidity; average trade value increased by 70% year-on-year, and it is expected to increase even more in the future . A critical factor in the region's [success / expansion] has been the coordination of parties involved in the timing, sequencing, and selection of companies to enter the market.
There has been a deliberate and strategic focus on how many and which transactions have been brought to market, rather than just focusing on the volume of transactions. This selectivity – and focus on quality and innovation as part of the region’s broader economic growth strategy – is a key differentiator behind the success of the capital markets we see in Dubai today.
The ecosystem’s tremendous growth is testament to the market’s rapid institutionalization. Dubai has all the prerequisites for companies to enter the market, supported by strong corporate governance; the move to standardize corporate governance standards for UAE banks in 2019 was a major step forward in this regard. With GDP growth of 4% expected for the UAE , the recent surge of economic and capital market growth is expected to endure.
2. Family businesses, small businesses and private capital players alike stand to gain from Dubai capital markets
Use of Dubai's capital markets provide immediate benefits to companies in terms of access to capital, a diversified portfolio, and the ease with which they can do business internationally. While the past year has evidenced the beginnings of market maturity in the region – with valuations falling and market conditions tightening – the opportunity is ripe for entrepreneurs of all sizes to work with capital partners to revise their business model, double down on innovation and build a sustainable business instead of just looking at the top line.
3. Continued diversification of investors in the region will create a virtuous circle of improving market depth and liquidity
Both investors and companies stand to benefit from continued diversification and advances in quality. Investors prefer companies that have a very coherent equity story, a strong corporate governance structure, and a dynamic team with a track record of capital deployment. While investors want to see how a company manages its risks, they also want to see how ESG fits into the company's equity story. Ultimately, all investors are willing to pay a significant premium for credibility.
Retail investor participation in capital markets is often hindered by factors such as high interest rates, low liquidity, the global recession and insufficient regulation, and a limited pipeline of IPOs. Liquidity and diversification of capital markets are crucial to broadening market access for this important segment of investors.
Top six considerations for companies that want to go public:
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Clarify the core value proposition: Before going public, companies need to focus on their core value proposition and develop their business model, establish a roadmap for scaling, and create a strong legal framework.
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Build credible corporate governance: Implementing corporate governance is something that every company needs to think about. And the three phases to that are corporate governance: education, documentation and implementation.
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Enhance the IR function: Focus on building a high performing IR function which can contribute to the short- and long-term success of the IPO.
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Ensure employees are central to your IPO journey: It is a top-down structure and every employee in the company should be aware of their role and responsibilities during this period. They should hear about the plans from you first, not from the media.
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Simplify the ESG strategy: Focus on a few ESG aspects and do it well. To make your ESG strategy relevant, look at what is happening in the regulatory arena. Most importantly, do not misrepresent your decarbonization strategy or mislead investors with your KPIs. Avoid greenwashing.
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Build bench of key advisors: This includes PR advisors who can help you properly frame your equity narrative and coherently disseminate it across multiple channels to reach your target audience throughout the IPO journey.