Family business empires in the Gulf region wary of going public

17/06/2015 01:03 AST

A few years ago, Abu Dhabi businessman Mohamed Al-Fahim aimed to list his family’s hotels company on the stock market. He saw this as the best way to ensure the survival of the family’s business empire.

Fahim had seen statistics showing that globally, 90 percent of second- and third-generation family firms failed when they remained in the hands of founders’ descendants. Going public seemed the answer.

But the global financial crisis, and the swings it triggered in Gulf markets, changed his mind. The float was ditched and instead, Al Fahim Group sold off oil and construction sector assets to cut costs.

Now the company aims to remain a family-owned conglomerate, with interests from tourism and catering to car and industrial equipment sales. “We changed our board of directors, our chief executive and chairman, and worked hard to create a protocol and articles of association,” Fahim said.

This brought in independent executives to manage the company, while the family could maintain ownership.

Al Fahim’s decision to shun an initial public offering is one that hundreds other family businesses in the Gulf may take. Before the financial crisis, these firms rushed to list on the stock market but many had to shed loss-making business when the crisis hit, making the IPO route much less appealing.

Some of these were founded a century ago by the region’s old merchant dynasties, others created more recently by local businessmen riding the post-World War Two oil boom or by Palestinian immigrants in the 1960s and 1970s.

As economies modernize and cross-border competition increases, the traditional Arab companies, long dependent on the energy and vision of a family patriarch, face pressure to become more professional and efficient. One option, promoted by Western-educated investment bankers from the region and Gulf stock exchange officials, is to dilute family control through public offers of shares and installing outside managements.

But that is meeting resistance from traditionalists, who think family firms can continue to prosper by modernizing themselves without big changes to ownership or control. Some invoke structures and strategies from Arab history.

Arijit Nandi, head of investment banking at Abu Dhabi boutique investment bank The National Investor, said that while families might divest peripheral assets, it was proving hard to tempt them into selling shares in core businesses.

“The crown jewels of merchant families will never be IPO-ed, they will continue to be privately held by the family.”

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Saudi Gazette