As part of Vision 2030, the government has been working toward greater economic diversification to reduce the country's reliance on oil revenues. To achieve these goals, steps have been taken to bolster the private sector and stimulate economic growth across a wider range of industries. Family-run businesses are set to be a key driver of this growth, and many are now preparing to go public.
Additionally, the need for public-private partnerships (PPPs) to drive economic diversification in the Saudi market has become more apparent, as the government seeks to fund a vast array of infrastructural projects. The period of economic evolution is necessitating a change in business models, and public offerings are one way to ensure that family-run businesses can survive and thrive in the coming years.
Economy Diversification & The Role Of The Family Business
The role of the family business in Saudi Arabia is significant and has been a mainstay of the economy for the past century. These businesses provide the majority of private-sector employment and are now seen as a key driver of economic diversification. One way that family businesses can participate in this growth is by becoming public entities.
There are several advantages to going public for family businesses. First, it can provide access to new sources of capital. This is especially important given the current economic climate and the need for businesses to invest in new technologies and innovative solutions. Additionally, becoming a publicly traded company can help a business boost its public image, attract more talent to senior management and board positions, and increase the company's transparency.
Tadawul — the Saudi Arabian stock exchange — has continued to soar throughout early 2022. This current bull run is providing family businesses with the opportunity to go public and benefit from the increased liquidity in the market.
How Public-Private Partnerships Drive Growth
To raise the current standard of living and bring the country in line with other developed nations, the government has been working on improving infrastructure across many key areas, including transportation, healthcare, education, IT, and telecommunications. This period of rapid infrastructural development requires significant levels of investment, which has created an ideal environment for public-private partnerships.
Currently, the Kingdom is a hotspot of PPPs in the MENA region, with a total of 18 projects announced to date, representing a combined value of $42.9 billion. The majority of these partnerships have been in the housing and transportation sector, but the renewable energy sector is also starting to see an increase in PPP activity. One notable government project that benefited from private investment is the Dumat Al-Jundal Wind Farm, which has a 400 MW capacity and is located north of Riyadh. The Saudi Water Partnership Company (SWPC) also secured funding from a private consortium to finance their Jubail 3B Independent Water Project.
Why IPO Planning Is Essential
Careful succession planning is crucial to long term business success as the patriarch prepares to hand over the reins to the next generation. A well-executed IPO can provide a way for the next generation to take over the business in an orderly manner, with less internal conflict.
However, to go public, a family business must complete a few preparatory steps. These include developing a detailed business plan, assessing the company's financial position, and hiring an investment bank to help with the IPO process. By becoming a publicly traded company, a family business can gain access to a wide range of investors and increase its visibility in the market. This can provide the resources the company needs to continue expanding and achieving its long-term goals. However, the leadership will also be under additional scrutiny and must be prepared to answer to shareholders and the investing public on a regular basis.
Family businesses need to understand the benefits and risks of going public. The decision to go public should not be taken lightly, and firms must be equipped for the additional demands that come with being a publicly traded company. However, if done correctly, going public can help family businesses grow and thrive for many years to come.
To discuss your operational realignment and preparation for IPO, contact us.