Representatives of companies participating in the "Transition of Family Businesses to Joint-Stock Companies" forum—organized by the Eastern Province Chamber of Commerce in collaboration with the Saudi Stock Exchange (Tadawul) last weekend, that taking the initiative and not hesitating to convert to a joint-stock company yields many future benefits, in terms of the continuity and sustainability of the company’s name and business activities, along with an increase in its actual market value.
The need for real estate companies to transition
During the forum’s deliberations, Ayman Al-Mudifar, CEO of Al-Andalus Real Estate Company, explained that the real estate sector is among those most concerned with the transition to joint-stock companies, especially income-generating properties, which are always in need of substantial financing, necessitating the diversification of the shareholder base. Al-Mudifar noted that this nature made the public offering of the company’s shares a general consensus among the group of owners from the outset.
Criteria for corporate conversion
Regarding the criteria required for family-owned companies to convert to joint-stock companies, Wissam Al-Farihi, a member of the Corporate Finance Department at the Capital Market Authority, stated that there are obligations companies must comply with before applying for an IPO, including disclosure requirements and listing rules, as well as requirements related to the company itself, such as that it must not have undergone a recent restructuring and must have published its financial statements for a period of three years.
Al-Farihi noted that the Authority does not set any criteria regarding the company’s operations, such as profits and sales, nor does it require the company to be profitable, but the reality is that any company going public must have a success story to achieve a certain level of investment appeal.
Separation of Ownership and Management
For his part, Saleh Hanafi, CEO of Halwani Brothers, emphasized in his speech that the company’s transition to a joint-stock company stemmed from the owners" conviction regarding the necessity of separating ownership from management, and their belief in institutional governance. He addressed the issue of control and the misconception held by some that an IPO causes founders to lose control, as well as the importance of the founders" presence—regardless of their shareholding percentage—on the board of directors in both the short and long term.
It doubles the company’s value and ensures its sustainability
In this regard, Youssef Al-Qafari, CEO of Al-Othaim Markets, emphasized that the transition of companies to family-owned structures offers them numerous advantages, emphasizing that it doubles the company’s value, makes it more stable, and ensures the continuity of its operations. He also discussed the company’s experience in transitioning to a public company, how the decision to transition was made, and the role of the board of directors in the public offering.
A Smooth Transition of Ownership
For his part, Mohammed Al-Saleem, Managing Director of Al-Mawasa Medical Company, reviewed the challenges the company faced at the start of the transition, noting that this was not so much a challenge as it was the owners’ determination to preserve the existing entity and ensure its smooth transition across generations.
IPO: Multiple Benefits
Naif Al-Adhal, Director of Primary Markets at the Saudi Stock Exchange (Tadawul), emphasized that the initial public offering (IPO) is important for both parties involved in the subscription process (the company seeking to go public and the investor wishing to subscribe). For the company, it is an opportunity to divest part of its assets and obtain liquidity to help finance desired projects, noting that an IPO is a strategic decision through which the company restructures its organizational framework and moves forward. For the investor, the offering also represents an opportunity to invest in a new company that could generate additional returns.
