Special purpose acquisition company (SPAC) transactions are set to become more common in the Middle East as an alternative to the longer initial public offering (IPO) process, according to Ernst and Young.
While IPO activity during the first half of 2021 was below expectations, Middle East-based companies showed an increasing interest in SPAC deals as a means to go public, said Gregory Hughes, EY MENA IPO and transaction diligence leader.
“We expect this trend to continue as companies seek to increase their international presence and gain access to a wider pool of investors.
“Positive equity market performances across the MENA region offer a favourable backdrop for IPO candidates looking to list their shares and the IPO outlook is favourable for MENA companies who now have a variety of options when it comes to the routes available to them to access the capital markets,” he said.
SPAC transactions may be considered as a capital-raising alternative to IPO. SPAC transactions result in the private operating company involved becoming a public company.
MENA companies have traditionally found it difficult to access US markets through the official IPO route, but SPACs have eased the accessibility and deepened the capital raising pool for these companies.
EY said that the UAE has been at the forefront of the increase in SPAC activities across the region. Earlier this year, Anghami (pictured below), a leading MENA music streaming platform with Lebanese roots and headquarters in Abu Dhabi, announced its intention to go public on Nasdaq by merging with Vistas Media Acquisition Company’s (VMAC) SPAC, at a valuation of $220 million.
The latest SPAC announcement for MENA has minted the region’s third Unicorn, as Swvl Inc, a Dubai–based provider of transformative mass transit and shared mobility solutions, announced its plans to go public through a merger with Queen’s Gambit Growth Capital (GMBT) SPAC, at a valuation of $1.5 billion. Trading of Swvl (pictured below) on Nasdaq is expected to start once the transaction is completed in Q4.
Sovereign wealth funds in the region, such as Saudi Arabia’s Public Investment Fund (PIF) and Abu Dhabi’s Mubadala, have also participated in notable SPAC transactions on the US markets.
According to latest figures released by EY, the Middle East and North Africa (MENA) region saw four IPOs raise total proceeds of $425.8 million during the first half of 2021.
This represented a 48 percent drop in proceeds when compared with the same period in 2020. The number of listings stayed the same year-on-year.
2021 began with a slow start after an uptick of issuances in Q4 2020. Following the three IPOs listed in Q1, the second quarter of 2021 saw only one MENA IPO issued, Taaleem Management Services, which was listed on the EGX and raised $131 million.
Globally, traditional IPO performance has remained strong after riding a wave of momentum from Q1, with 597 IPOs raising total proceeds of $111.6 billion.
Matthew Benson, EY MENA strategy and transactions leader, said: “The MENA region’s IPO market did not witness a pick-up in activity during Q2, with only one IPO occurring on the EGX, while direct listings continued their momentum with six listings across several MENA countries.
“Compared to H1 2020, though the number of IPOs remained at four offerings during H1 2021, total proceeds raised, decreased by 48 percent. Preparations are ongoing for several key transactions expected to occur during the second half of this year, in particular with the UAE and Saudi Arabia demonstrating a strong pipeline of IPO candidates.
“Our outlook on the region’s IPO activity remains positive, taking into account the continued improvement in economic conditions and stability in the region, coupled with the strong performance of oil prices we have seen thus far in 2021.”
In the UAE, the Abu Dhabi Securities Exchange (ADX) is gearing up for several rumoured IPOs. The Abu Dhabi National Oil Company (ADNOC) and OCI are considering the listing of their joint venture, Fertiglobe. ADNOC has also announced the sale of a minority stake in its drilling unit in an IPO valued at $10 billion.
In Dubai, the Capital Markets witnessed another setback when the anticipated IPO of Tristar Transport, a logistics company, was cancelled after it had started its public share sale in early April. The company was planning to offer 24 percent of its shares on the DFM at an implied valuation of up to $882 million.
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