The global IPO boom has washed up on the shores of the Gulf states and the buyout industry is ready to benefit
As 2022 commences, it is clear 2021 was a boom year for global IPOs.
According to data from EY, 2021’s global IPO market exceeded the total 2020 figure as early as Q3, and was the most active third quarter by deal number and proceeds for 20 years – with volumes up 87% and proceeds by 99%.
This global momentum has been mirrored in the Gulf, with both Riyadh and Abu Dhabi booming with new issues.
In Abu Dhabi, satellite operator Yahsa kicked off the IPO frenzy in July. Since then, ADNOC Drilling debuted on the market in October in what was Abu Dhabi’s largest ever listing – with a valuation of more than $10bn. Fertiglobe, the fertiliser maker, valued at $795m – also listed in October, and Abu Dhabi Ports remains on track to IPO before year-end.
In Saudi Arabia, ACWA Power International’s $1.2bn IPO was 248x oversubscribed, attracting $300bn of orders. Saudi Tadawul Group Holding is set to price in December and may raise as much as $1bn and family group Almunajem Foods Company, which recently priced, is looking to raise $288m with an institutional book 176x oversubscribed
Nomu, the parallel exchange in Saudi Arabia which lists small-to-medium sized companies has also experienced high IPO activity in 2021. Saudi real estate firm, Bunyan United Company, is expected to be the largest Nomu listing to date with a value exceeding 1bn Saudi Arabian Riyal (SAR) – about €232m. Group Five Pipe Saudi, another recently completed listing, was 2,208x oversubscribed, and Advance International Communication also priced in late December – 19.8x oversubscribed. Saudi food delivery firm, Jahez, has also announced pricing for its IPO – of up to $2.4bn – ranking it as one of the biggest startups in the Middle East.
Private equity’s role in IPOs globally and reinvigoration of listings in the Gulf create an attractive opportunity for firms in the region to support and benefit from the listing activity.
Listing momentum
Regionally, the pipeline of private sector listings is well positioned following the momentum created by listing volumes generally, and the tailwind provided by government policy in listing state-owned companies. Listing activity has been spurred on by the political agenda and different countries’ strategic agendas. Countries are liberalising their capital markets – exchanges and regulators are being constructive in working with underwriters, who in turn are keen to introduce a strong pipeline of quality IPO candidates. This all bodes well for private equity whose investment approach and preparation over years and months, not weeks, places them at the head of the queue for non-state owned company listings.
At the outset, in an environment where IPO investment decisions can be made after 45-minute roadshow meetings (which today have every chance of being virtual), track records of returns and quality due diligence will always be competitive differentiators. Also financial sponsors’ ability to demonstrate a back catalogue of incubating winners is bound to provide added comfort for underwriters and IPO investors alike.
But beyond the exit route, financial sponsors’ equity also provide a strong institutional shareholding base in the public space. As cornerstone investors, active participants in governance and strategy and financial investors capable of understanding the transparency and investor relations requirements of the public shareholders. Globally, there is the performance of private equity-backed IPOs. Data from Refinitiv and Allianz suggest that private equity-backed IPOs tend to substantially outperform their “naked” peers (traditional IPOs and direct listings) in periods of market stability and consolidation.
The data shows outperformance in key sectors: technology, consumer non-cyclicals, real estate and small-cap financials. On a size basis, private equity’s “lead” – while consistent throughout – was most evident in the $50-500m range.
Virtuous circle
This is a virtuous circle for private equity firms, as they subsequently deepen the market by providing more exit routes for eligible companies, which – in turn – is positive for the long-term health of stock exchanges.
After a period of turmoil for global capital markets, private equity seems ideally positioned for the next phase. Globally, the industry’s historical outperformance is becoming increasingly clear and – in the Gulf – the stars are aligning for a flurry of non-state owned listings, in which private equity can play an influential role.
Huda Al-Lawati is founder and CEO at UAE-based private equity firm Aliph Capital.