The Middle East and North Africa (MENA) region is predicted to see a market boom in the near-to-medium term despite the dark clouds gathering over the US and other Western economies that triggered a rout in stock markets around the world over the last two days.
The region’s Rhinos – a term used for resilient and successful startups with valuations over $100 million – are projected to create an over $50 billion market cap through initial public offers (IPOs).
Over 60 Rhinos in the region, including fintech ventures such as Tabby and Tamara, foodtech ventures Kitopi and ToYou, classified ventures such as Bayt and Property Finder and the B2B/SaaS ventures such as FOODICS and UNIFONICs, are the ones expected to hit the market over the next five years, new market research by global consultancy RedSeer said.
“MENA’s Rhinos have been the backbone of the region’s digital economy, and they are expected to account for 30 percent of the IPOs over the next five years,” the study said.
The RedSeer study also predicted MENA to see over 200 IPOs from now till 2029 as against about 182 initial offers during 2018-2023.
Rhinos thrive in MENA
The study said while the world is chasing elusive unicorns, the region is quietly nurturing Rhinos, with as many as 100 ventures already reaching advanced stages of growth, and many more expected to mature over the coming years.
MENA accounted for just 6 unicorns in 2023, as against 1,357 globally.
“While 30 Rhinos are IPOs-ready, about 70 are expected to take the merger and acquisition (M&A) route to help fill gaps and drive synergies,” RedSeer said.
Ventures in the retail, logistics and foodtech sectors are ripe for consolidation and expected to lead this M&A activity, it said.
“Rhinos in the retail [sector] will see market-entry acquisitions to add scale, while those in logistics are to consolidate for sustainability and the ones in foodtech will improve stability through vertical integration,” RedSeer said.
The study said because of the region’s growth capital share being about 40 percent lower than the global average, there is a belief that there is limited access to growth capital.
“The prevailing narrative that the MENA region has fewer unicorns and lacks growth-stage funding is misplaced,” Akshay Jayaprakasan, Dubai-based Associate Partner at RedSeer Strategy Consultants,” told Arabian Business.
“In the current macroeconomic context, Rhinos are more relevant and deserve praise for building businesses with strong fundamentals, achieving profitability faster, and driving sustained 15 percent growth over the years.
“Many of these Rhinos are ready for IPO and are eyeing their public market debut over the next 3-5 years,” he said.
MENA’s Rhinos are listing faster
The study showed that MENA’s Rhinos are listing faster and meeting funding gaps through public markets.
“With an average of 8 years to IPO, compared to 11 years in the rest of the world, the MENA region scores globally for startup ventures to go public faster,” it said.
These ventures exist across sectors, with most of them being in the retail, enabler, tech, classifieds and digital services, and power about 70 percent of MENA’s digital economy, the study said.
“Our thesis is that digitalisation has enabled significant value creation as well as value transfer between traditional and digital players across all sectors in the economy, and as thus, it is inevitable that internet business will contribute more and more to the market cap of stock markets in the region,” Khaldoon Tabaza, Managing Director of iMENA, told Arabian Business.
“As such, we do believe that IPOs have finally become a viable exit scenario for online businesses in our region in general, and in Saudi in specific,” said Tabaza, who is also an investment committee member at the OBIC-iMENA Rua Growth Fund.
The RedSeer research projected digital Rhinos to account for 30 percent of the IPOs over the next 5 years.
The MENA region saw a surge in IPOs over the last 5 years, with 2022 being a breakout year, with 51 issues, though in terms of IPO proceeds 2019 was the best year for the region.
During 2018-2023, the region witnessed over 170 IPOs, raking in over $80 billion.
Government-owned companies dominated the IPO market, with Saudi Aramco, ADNOC, Saudi Tadawul Group, Salik, Dubai Electricity and Water Authority, Borouge and Luberef raking in over $1 billion each.
“We expect the momentum to continue and anticipate to see about 60 IPOs of digital-first companies over the next 4 years,” RedSeer said.
The study also said MENA is projected to see over 200 IPOs from now till 2029, as against about 182 IPOs during 2018-2023.
Jayaprakasan, however, said scale is important for the IPO readiness of Rhinos, and consolidation is imminent in many sectors in the short term, which will serve as a catalyst for IPO readiness in the medium term.
“Foodtech, online retail, logistics, and tech/SaaS are sectors to watch for consolidation,” he said.
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