Most family-owned firms want to go public |
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More than half of the big family-owned companies in the Gulf and the Middle East would like to convert to public joint stock companies by listing in the region's stock exchanges, Emirates Business has learnt.
This, and other interesting facts about the family-owned business sector was revealed in a study conducted recently by the Riyadh, Saudi Arabia-headquartered company, Arnest Wing.
"More than 20 per cent of family-owned business in the Gulf and the Middle East are currently already planning to issue initial public offerings (IPO)," said Rami Nazzar, head of the unit at Arnest Wing, Riyadh. He said the study revealed that another 30 per cent would also like to go IPO at some stage in the future, but are reluctant to act on such a step at present in order to keep their fortunes and assets.
The study revealed how family-owned companies and businesses are considered among the most famous and strongest companies in the region and that they are continuously growing. The study showed family-owned business control 90 per cent of commercial activities in sectors such as garments, foodstuff, consumer products, automobiles and aviation.
Family-owned businesses have been contributing in the contracting, hospitality, hotels, energy and telecommunications sectors. They are playing a major role in the rising growth of employment, consultancy services and the flow of big capital. Fifty per cent of such companies achieve at least $100 million and 17 per cent achieve at least $500m in annual profits.
Nizzar highlighted how family-owned businesses are an old trend in the region, where 64 per cent of the big family-owned companies were established prior to the year 1964. He dismissed the notion that such companies would vanish due to agreements such as the Gatt and open markets and said they had proved their strength by adapting to international economic trends and had entered new areas such as telecoms.
But what threatens such companies the most is "the third generation" for its worse managerial performance and a tendency to waste the big fortune that their fathers and grandfathers have built over the years.
"The third generation represents 20 per cent of the heads of firms, while the first generation represents 48 per cent. And there is even a concern about the perceived erosion between the first and the second generation. The rise of the third generation means the degradation of the companies' performances, and saving them would only be to possible by converting them into listed companies and separating owners and management," said Nizzar.
He did not name any big of the companies in the region, saying they were "sensitive names" which control a variety of areas in all sectors. Seventy-two per cent of these companies work in the trading and consumer sector, 48 per cent in real estate and hospitality, 32 per cent in industrial projects, and 12 per cent in energy and petrochemicals.
Nizzar added that his study also addressed future objectives of the companies and it emerged that 60 per cent of them plan to enter new areas, especially in the real estate and food sectors.
The lack of work strategies remains one of the major problems faced by family-owned businesses. The study revealed that 20 per cent of the companies covered do not have clear business strategies, While 56 per cent wanted to have such strategies in place, 64 per cent lacked the corporate infrastructure to strategise.
Nizzar called for the quick implementation and execution of the "Family self Ruling" system by founding-family councils and discussion on the separation between management and ownership. This would enable the drawing up of effective strategies and restructure the companies to go fit into the current economic environment.
The continuity of any family-owned business depends on its activities and the awareness of its owners and inheritors. Some firms remain as one entity, while other houses become fragmented and split-up to establish several units separately, which causes an erosion of the total capital. That is why there is need for such firms to go public, in order to combat "the selfishness of some inheritors" and to open up to society and serve it so that people and the owners can share the benefits, said Nizzar.
By Ashaba K Abdul Basti
© Emirates Business 24/7 2008
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Please note that the person who worked on the survey is Mr. Rami Nazer, Partner and Head of Ernst & Young (and not Arnest Wing as stated in the article) Family Business Center of Excellence. [Report Abuse | Email to a Friend | Reply to this Comment]