Capital markets as a viable path for exits in MENA

Written by
Dr. Bilal Baloch
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A roundtable event, co-hosted by Shorooq and London Stock Exchange (LSEG), brought together key stakeholders at Abu Dhabi Global Market (ADGM) HQ to explore the challenges and opportunities of utilizing capital markets for tech companies as a viable exit path in the MENA region.

December 5, 2024

Setting The Scene

A roundtable event, co-hosted by Shorooq, London Stock Exchange (LSEG), and Dubai Financial Market (DFM), brought together key stakeholders at Abu Dhabi Global Market (ADGM) HQ to explore the challenges and opportunities of utilizing capital markets for tech companies as a viable exit path in the MENA region.  

The event formed an important part of the organizers’ collective efforts to take the lead in fostering vital conversations about the role of capital markets for companies. The participants included tech entrepreneurs, public and private investors, ecosystem builders, advisors and law firms. The discussion focused on exploring potential solutions to four pre-defined problem statements, unpacking some core challenges and opportunities surrounding using capital markets as a viable exit path for tech companies in the region.

As an outcomes-based initiative, invited participants – including tech entrepreneurs, public and private investors, ecosystem builders, advisors and law firms – sought to map out concrete pathways to deepen the exit market and strengthen a nascent ecosystem.

Dr. Bilal Baloch, Partner at Shorooq Kickstarting the Roundtable Discussion

Key Questions Asked

  1. Liquidity remains one of the biggest challenges for the MENA ecosystem. The route to monetisation is not clear cut, and the number of exits has not been substantial to date. Private exits through M&A account form the overwhelming majority of exits – as much as 98%. What is needed to boost the option of an IPO as an exit route?
  2. The MENA region currently has a growth-stage funding gap of $21 billion. For local start-ups to become global disruptors, strong capital markets with international exposure can be crucial to unlock cross-border growth opportunities and elevate regional unicorns. How can we create a more conducive environment to foster local growth-stage investors?
  3. Exposure to international investors and capital markets is crucial for companies to become more international, but according to the 2023 Middle East Capital Markets Survey, nearly 70% of respondents reported foreign ownership below 20%. Furthermore, more than half of the surveyed companies (52%) expressed a preference for dual listing on another exchange. Adopting international best practices is essential to attracting more international investors and facilitating crossover listings. What international best practices should MENA companies adopt to attract international investors and facilitate dual listings?
  4. As the MENA tech ecosystem emerges from a funding winter, over 30 regional tech companies are preparing for IPOs in Gulf Corporation Council (GCC) markets and abroad, but not all are necessarily ready or ideally suited for public listings. Identifying the core elements of feasibility is crucial to avoid past pitfalls. How can we identify the companies best suited for public listings?

Key Takeaways

  1. Liquidity: More liquidity is essential to support the MENA ecosystem. Steps that could increase liquidity include broader investor participation, better structuring of IPO allocations, and improving the allocation process for IPOs. Moreover, participants highlighted lessons from other markets, including the UK’s Alternative Investment Market (AIM) that provides liquidity to companies through structured public offerings without the full burden of a Main Market transaction.
  2. Institutional research: Institutional research has a pivotal role to play in the IPO ecosystem. Research enables more informed decisions and reduces the likelihood of IPOs being mispriced or underperforming. In addition, more aftermarket support in the form of ongoing research is also crucial to promoting liquidity and maintaining investor engagement, with one participant noting that, “research creates credibility, and without it, we can’t start the cycle of sustainable capital markets."
  3. Education: The key role of education across the ecosystem was highlighted several times during the discussion, specifically with respect to ensuring that issuers fully understand the implications of an IPO going public. Moreover, investor education is needed to ensure that investors unfamiliar with the dynamics of tech and growth-stage companies receive the information and insights they need to make more informed decisions.
  4. Regulation: Reviewing some of the more restrictive regulations around the listing process would offer immediate help to companies looking to list. Moreover, there is a need to streamline regulations and foster more collaboration between exchanges. This would support more dual listings and enhance liquidity.
  5. Sovereign wealth funds: Sovereign wealth funds – as well as family offices and pension funds – have a crucial role to play in funding local IPOs (starting with high-growth sectors like technology), and in providing last-mile capital to strengthen the region’s IPO and overall exits ecosystem. Otherwise, there is a risk of stunting and slowing innovation.

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