As the Gulf's initial public offering (IPO) and private equity markets rebound, aided by improved confidence in the regional economy, companies '“ including family businesses '“ are increasingly looking at IPOs or private equity as routes to raise finance, an expert has said.

According to Institute of Chartered Accountants in England and Wales (ICAEW) corporate finance faculty head David Petrie, while the start of the year saw lower IPO valuations compared with the same period last year, Ernst & Young reports show it was one of the best performing quarters the region has seen in years, with strong after-market performance expected to encourage further listings in the coming months.

The region's private equity market is also recovering with more international institutional investors trickling back into the region, he was quoted as saying by the Gulf Daily News, our sister publication.

This bodes well for local businesses looking to raise finance, Petrie said. 'The most important strategic question is 'are you looking to cash out or to raise capital?'

'If your aim is to exit or sell the business, an IPO can get you a better valuation, but then you will have to make sure the business is ready and fully prepared to go public,' he said.

'Conversely, when companies are looking to grow the business through capital acquisition, private equity can be a better route to follow.

He said businesses will need to ensure they have robust financial and business infrastructure in place, as well as rigorous corporate governance and an investor relations strategy that will attract the right investors.

The key decision will be assessing and deciding which region, country or exchange is the best fit for the organisation.

'It is crucial to go where investors and the market understand the business,' he said.

'For example, oil and gas companies might decide that the Abu Dhabi or Dubai Securities Exchange are potentially good markets whereas, say, water companies might feel that the Singapore Exchange is a better fit,' he added.

Petrie said IPOs are almost certainly the best option when deciding to cash out of a business, especially when the scale of the operation is large enough that there is no suitable strategic partner to purchase the business.

However, going public is not for every business.

There are potential pitfalls and the stakes are often high. Companies should, therefore, rigorously evaluate the shareholder and corporate objectives.

'Companies considering an IPO should also remember that they will become subject to much greater scrutiny once they have gone public and that this will have to be managed accordingly,' he said.

'If the owners of the business are thinking more tactically and are looking to increase the value of the business over three to seven years, then private equity may be a better alternative than going public.'

When private equity investors decide to invest in a business, they will typically share the same goals as the business owner, he said.

'So in addition to capital, they can bring new strategic and operational perspectives to the business, enhancing its intellectual capability.'

For family businesses looking to maintain some control over the business, private equity is often the preferred route to pursue, he said.

However, family businesses should always bear in mind that when private equity investors do invest, they will also be considering their exit strategy.

'While the IPO and private equities markets look relatively positive at the moment, businesses will be wise to carefully review the pros and cons of each route before taking any decision,' he said.

'Ultimately, each case will be different, with specific challenges and opportunities for each individual business, sector and company,' he added. – TradeArabia News Service