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Dubai: Only 20 per cent of family-owned businesses in the Middle East have plans to take their companies public, even though 50 per cent believe that going public is an important step for business survival, according to a survey of family businesses in the Middle East by Ernst & Young.
The survey pointed out that 20 per cent of family businesses in the region opposed the idea of taking their companies public while 60 per cent were not committed.
Raju Menon, managing partner of Morison Menon Chartered Accountants, said, "This is not a good scenario."
IPO law
According to Menon, this could be a mindset issue as well as public policy issue due to the fact that the current IPO law in the country requires family holdings to sell 55 per cent of the shares of their businesses to the public if they are to go public, and retain only 45 per cent.
Dr. Khalid Maniar, founder and managing partner of auditing and business advising firm Horwath Mak, agreed that with the current IPO laws such as in the UAE, it is not surprising that family businesses in the region are hesitant to go public "because they don't want to lose control of their businesses."
According to Maniar, there are many advantages for these businesses to go public including easy fin-ancing, ability to encash part of the fortune to diversify their portfolio, and spreading the risks.
"Going public will help attract public participation in the business, and bring in the corporate governance and transparency that comes with going public. This would help put the managing system for the businesses that will help it last long. It is like a cushion to protect the business, especially those family businesses that are run by say third generation entrepreneurs who could spoil the business," added Menon.
Both economists were optimistic that the move to relax IPO rules, at least in the UAE, would help change mindsets and encourage more family owned businesses to go public. The new rules would allow the family to keep the majority of the shares, hence retain the control of their businesses.
Pros and cons
Omar Bitar, managing partner, advisory services, at Ernst & Young Middle East, said: "As family businesses grow older and larger, they have to deal with increased levels of risk and complexity that global companies already have the processes for. They also face pressure from various stakeholders to increase transparency and make quantum leaps in their profitability.
"Ernst & Young's Family Business Centre of Excellence is designed to guide them through the ever changing business landscape and our annual Family Business Survey will benchmark their progress."
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