A good initial public offering (IPO) needs two things to succeed: strong investor interest spurred by swarms of hungry brokers; and a liquid, efficient market on which the shares can be traded.
The failed Axiom Telecom IPO on NASDAQ Dubai this week had neither.
Despite the last-minute cancellation of the offering, from which the mobile phone retailer had hoped to raise as much as US$382 million (Dh1.4 billion), the exercise was not a waste of time for everyone.
For once, it was not just the lawyers who benefited. An IPO requires a major public relations and communications effort - and in the largest and most complex global share issues, this can involve fees of about $1m, executives say.
The cancellation of the Axiom issue has prompted some to revise their predictions for growth in the local PR and communications field.
The Axiom listing was seen by some as a bellwether for future IPOs and, by implication, revenues for the PR and communications industry. A typical IPO in the region can yield revenue of between $30,000 and $200,000 for PR agencies, local executives say. If this is accompanied by a wider PR campaign and advertising, the spending can be much higher.
Mazen Nahawi, the founder and president of News Group International, a news management and monitoring company based in Dubai, says spending $1m on a comprehensive campaign for a public listing is not unusual.
"To have done [the Axiom IPO] well would have cost no less that half a million to $1m on PR and communications," Mr Nahawi said.
Local public relations executives, however, are privately sceptical of such a high figure for the Axiom IPO. Some point to PR agency fees of $30,000 to $100,000 to handle a listing of a local company on a local bourse. This could be as high as $200,000 for the largest regional IPOs, they say.
But one executive acknowledges that for the most complex global IPOs, the total PR and advertising costs over multiple jurisdictions can top $1m. On the biggest accounts, a PR agency might be engaged for up to 12 months ahead of a listing.
Although Axiom is a relatively small company, Mr Nahawi, who is also the chairman of the research committee at the Middle East Public Relations Association (MEPRA), says the costs could still have escalated.
"For an IPO to be done well, a lot needs to happen from a PR point of view," he says, noting that typical activities include organising an international roadshow targeting investors, creating and communicating a corporate prospectus and organising press conferences before and after the listing.
Other communications costs include crisis management, the hiring of a spokesperson, monitoring and social media engagement, media training and translation.
Rupert Young, a partner and head of UAE operations at the communications agency Brunswick Group, says the PR and communications costs connected with an IPO can vary widely.
"It's a bit like saying 'I want to buy a car. What will it cost me?' It's very difficult to give a generic price. It depends on the profile and size of the company as well as the required campaign."
Mr Young, whose company has worked on IPOs for local companies including Depa and Drake & Scull, says the cost also depends on whether a communications campaign is targeting retail investors.
"Retail involves much more indirect marketing. You do a lot more advertising and media work. It can change the price dramatically," he said.
After a flurry of IPOs during the boom times, there has been a dearth of share sales in the region. In the absence of such activity, other financial communications work is available, Mr Young says. But a share issue is a good way to start working with a client, he says.
"An IPO should lead to a longer-term relationship with a client because an IPO is the beginning of a company's public life and it will have an obligation to communicate to the market on a regular basis.
"Fewer companies listing will of course mean less advisory fees in the marketplace. But financial PR companies will flex to do more corporate work until capital markets recover," he says.
Kate Delahunty, the managing director for the MENA region at the PR company Capital MS&L, agrees that an IPO is a solid way to begin working with companies at "the start of their public life".
"You get to know their equity story inside-out and also build more of a trusting relationship," she says. "The initial IPO fees tend not to be huge, but what you can get after that tends to be lucrative … We go on to do corporate PR, their investor relations."
Capital MS&L has worked on many IPOs in the region, including for Nawras, Wataniya Mobile and the abandoned Axiom listing.
Mr Nahawi says the cancellation of the Axiom listing - and what it means for the IPO market - could hurt PR revenues next year.
"Axiom is really symbolic of market sentiment," he says.
"Had the Axiom IPO gone ahead, I had estimated a 10 per cent to 15 per cent growth rate for next year. Now it's been pulled back, I'd estimate it at 5 per cent to 10 per cent."
Mr Nahawi points to the "hundreds, perhaps thousands, of family businesses" in the Arab world, many of which are expected to initiate share sales. But they are still waiting for the markets to recover.
"An IPO catalyst is needed, and that will help boost the PR and communications business," Mr Nahawisays. "2011 will really be a sort of moderate growth year, which could be spurred into [greater] growth if IPOs take off."
But John Hobday, the senior managing director for the Gulf region at financial PR consultancy FD, which worked on the listing of Ajman Bank on the Dubai Financial Market, disputes the assertion that IPOs have a strong sway on total PR revenues.
"We didn't build a business here based on potential IPOs. It is not our most lucrative product and service," he says. IPO PR work "has become increasingly commoditised", Mr Hobday says. "It's a straightforward communications issue … The most lucrative projects we get involved in tend to be communications strategies around complex and critical situations."
Investment needed in industry
More investment in research is needed to help the public relations industry prove its worth, industry executives say. Measurement of the effectiveness of a PR effort has historically been based on how much coverage a particular campaign receives in the media and the equivalent advertising value.
Camilla d’Abo, the managing director of the consultancy d’pr, based in Dubai, says such a measure is “one of the most old-fashioned” in the industry.
She says the sector will become more accountable if clients are willing to invest in surveys on issues such as corporate reputation and customer sentiment.
“It would be good to have more investment from clients, to have more ways of measurement,” Ms d’Abo says.
“If the client is not willing to invest in a measurement criteria, a survey … then it’s quite hard to measure.” Rebecca Hill, the executive director of the Middle East Public Relations Association (MEPRA), says there is now “less emphasis” on advertising equivalents as a measure, which “is reflective of the growing maturity of the business”.
Jamal al Mawed, a PR manager at d’pr who was recently named Young Communicator of the Year by MEPRA, says standards in the public relations industry have improved in the UAE but still lag in other countries.
“In Saudi, Pakistan and Syria, [public relations] is directly linked to advertising … It’s a case of ‘if you advertise, we’ll publish your story – if you don’t, we won’t’,” Mr al Mawed said. “As an overall mindset, we’re still a few years off in getting to the required standards in those markets.”