Only one-third of the 38 IPOs (Initial Public Offering) in the GCC succeeded in 2021, although it was the best year for new listings since 2007. 

 

Specifically, just 38% of IPOs were priced adequately - the majority of companies leave too much money on the table. Only 32% of companies traded within the typically desired share price range of 20% within the first 30 days of going public. And merely 31% of new listings outperform companies that are already listed in the longer term.

 

These are among the findings of a new report published by Iridium Advisors, entitled “The Renaissance of IPOs in the GCC,” that examines the success rate of company listing and demystifies some common misconceptions about IPO winners and losers. 

 

Criteria for success

Iridium’s analysis of 457 initial public offerings in the GCC region between 2005 and 2021, benchmarked companies against three objective criteria of success:

 

*Underpricing: the difference between the IPO offer price and the first-day closing price;

*Stabilisation period: the 30-day period of price stabilisation post-listing; and

*Excess return: the relative company share price versus a country index over time.

 

Opportunity to re-energise

“It is very encouraging to see government-owned and private companies embracing public equity markets in the GCC,” says Oliver Schutzmann, CEO of Iridium Advisors and a co-author of the report. 

 

“With a well-thought-out programme of new public listings, which is already under way, the region has the opportunity to re-energise its capital markets and attract foreign capital to diversify economic growth. Nevertheless, there is still a big mountain to climb to unlock the true capital markets potential of listed companies for both issuers and investors.”

 

Companies planning a public listing need to be aware of the high probability of disappointment and ask why this should be the case. Iridium’s analysis has identified three key areas that are commonly overlooked by company owners, directors and senior management that can play a part in improving the odds of success:

 

Different dynamics

*There are different dynamics at play in the primary and secondary market:

The primary market is where shares are issued;

The secondary market is where shares are traded;

Successful issuers recognise that investors trade among themselves in the secondary market without any direct involvement from the company, and that their company is only worth as much as the last share price.

 

Pre-IPO and post-IPO

*There is a difference between pre-IPO and post-IPO investors:

Pre-IPO investors typically invest short-term;

Post-IPO investor usually invest long-term;

Companies whose share price outperforms its benchmark after the listing understand that there are different types of investors with varying motivations and interests.

 

Investor relations

*The assumption that Public Relations and Investor Relations are synonymous could lead to failure:

The purpose of PR is to generate short-term interest;

The purpose of IR is to attract long-term investment;

While both PR and IR have an important role to play, PR features more prominently before and after an IPO, while IR often tends to remain an afterthought.

 

Value destruction

Schutzmann concludes by adding: “The risk of value destruction is real for private and public sector companies in the GCC preparing for an IPO, SPAC, or a direct listing in 2022. It is, however, not inevitable. Key areas of focus to improve the chances of success are taking a long-term view in pre-IPO preparation, identifying the right type of investor, and developing the capability to create organic relationships with the professional investment community. 

 

"These three steps can guard against major share price gyrations after a listing and will go a long way to ensure that the region’s companies – and their owners - are rewarded with the right valuation by the market.”-- TradeArabia News Service