A new survey has revealed that half of the Middle East’s family businesses consider going public “important to their survival.” However, only 20 percent of them are actively planning to take their company public while 20 percent oppose the idea and the remaining 60 percent remain non-committal.
Of the family businesses surveyed, 50 percent had annual revenues above $100 million [USD] and 17 percent had annual revenues of over $500 million. Yet only 8 per cent were publicly traded.
According to Abu Dhabi-based investment bank Gulf Capital, at least 120 IPOs worth a total of $24 billion are planned in the Gulf Cooperation Council (GCC) through to 2010, as more and more companies look to equity markets to raise funds for expansion.
The results were published as part of the first Ernst & Young Family Business Survey, which covers a range of family business characteristics including strategic planning, organisation structure, governance, human resource alignment, operational excellence, management and ownership transition, succession planning and communications. The survey was carried out in Saudi Arabia, Kuwait, Qatar, Oman, Lebanon, and Jordan.
The majority of family businesses surveyed are run by second-generation entrepreneurs (73 percent), followed by first and third generation owners at 48 percent and 20 percent respectively.
Only 16 percent feel that there is a well-defined succession, management and ownership transition plan, pointing to a serious lack in this area. Studies have shown that seven out of 10 family businesses fail to make the transition to the second generation, and only one in ten makes it to the third generation. Currently, only 5 percent of family businesses survive the third generation, due in large part to a lack of strong succession strategies. There were, however, more encouraging indicators to come from the survey results.
“When we see 68 percent of the respondents declaring that their management team is selected purely on the basis of competence and not on relationship, we can conclude that the majority of regional family businesses are mature and practical in terms of appointing management,” said Omar Bitar, Managing Partner, Advisory Services at Ernst & Young Middle East.
“They realise that professionalisation of management structures and adoption of global business processes brings long term value to the business,” he continued. “The fact that 40 percent of family businesses have non-family members on their board of directors suggests that they are opening up to new ideas and are willing to accommodate differing perspectives.”
Forty-six percent of family businesses surveyed were established in the 1960s or before, and all of those employing upwards of 5,000 people were founded in 1960s or before. 72 percent of the total respondents operate in the retail and consumer sectors followed by 48 percent in real estate, hospitality and construction and 32 percent in industrial products. Only 12 percent of the respondents operate in the energy, chemicals and utilities sectors. However, 60 percent are planning to diversify into new sectors in the future.