What should UAE investors look for before investing in an IPO?

Few market events generate as much excitement as an initial public offering. The prospect of buying into a familiar company as it enters the stock market is compelling, particularly in the UAE, where high-profile listings have given investors access to businesses and sectors that were previously unavailable on the public markets.

But an IPO is not a stamp of quality, nor is it a promise of a quick listing gain. It is both a financing event and a sale. The investor’s task is therefore not simply to decide whether the company is attractive. It is to decide whether the shares are attractive at the price being asked.

The UAE market has already demonstrated considerable scale. According to EY’s MENA IPO Eye, seven UAE IPOs raised $6.2 billion in 2024. The pace of issuance was more measured in 2025, with three companies choosing to list and raising $376.2 million. Such variation is natural in IPO markets, where companies choose listing windows that suit their development and prevailing market conditions. The longer-term direction remains positive, supported by continuing capital-market development, economic diversification and a pipeline spanning several sectors.

Start with what is actually being sold

An IPO may involve newly issued shares, existing shares sold by current owners, or a combination of the two. When new shares are issued, the proceeds go to the company and may fund expansion, investment or debt reduction. When existing shares are sold, the proceeds go to the selling shareholders. A secondary sale is not necessarily a warning sign, but investors should understand why the owners are selling, how much they will retain and whether their interests remain aligned with those of new shareholders.

The prospectus is the best place to establish these facts. It should be read as an investment document, not merely as a set of subscription instructions. The following six questions provide a useful way to approach it.

Six questions investors should ask

1. Do I understand how the business makes money?

Investors should be able to identify the company’s principal sources of revenue, its competitive advantage and where future growth is expected to come from. They should also ask what could weaken that growth. Dependence on a small number of customers, government contracts, commodity prices, regulation or a single geography can make apparently strong performance less resilient than it first appears.

2. Are reported profits supported by cash?

Revenue growth and earnings per share are important, but they do not tell the whole story. Investors should examine operating cash flow, margins, working-capital requirements, debt and the investment needed to sustain growth. They should also separate recurring performance from one-off gains. A company whose profits repeatedly fail to convert into cash may be a riskier proposition than its headline growth suggests.

3. What assumptions are built into the valuation?

A good company can still be a poor investment if the offer price already assumes near-perfect execution. The proposed valuation should be compared with relevant listed peers using measures suited to the sector, such as price-to-earnings, enterprise value to operating earnings or price-to-book value. Differences in growth, profitability, debt and risk must then be considered. The question is not simply whether the IPO looks cheaper than a peer, but whether the difference is justified.

4. Where will the money go, and who is selling?

The use of proceeds often reveals more than the headline amount raised. Funding productive expansion or strengthening the balance sheet is different from an offer designed mainly to provide an exit for existing owners. Investors should examine the split between new and existing shares, the post-IPO ownership structure, the size of any retained stake and the lock-up arrangements that restrict further sales after listing.

5. Do governance and free float support outside shareholders?

Many newly listed companies retain a controlling shareholder. Investors should therefore consider board independence, related-party transactions, the rights attached to the offered shares and the credibility of the dividend policy. They should also assess the true free float. When only a small proportion of shares is available for trading, relatively modest buying or selling can have a large effect on the share price and liquidity.

6. What does strong demand really tell me?

Cornerstone (Anchor) investors, reputable advisers and institutional participation can provide useful signals, but none removes the need for independent analysis. Oversubscription also needs careful interpretation. It may reflect genuine confidence, but it can be amplified when investors expect only a small allocation or are seeking a short-term listing gain. Heavy demand tells us that an offer is popular at the application stage. It does not, by itself, establish that the valuation is attractive or that the company will perform well over time.

Risks that are easy to underestimate

An IPO company has financial history, but it has no public-market history. Investors have not yet seen how management responds to the discipline of regular reporting, market scrutiny and changing investor expectations. The first results published after listing can therefore be particularly informative.

Price discovery can also be volatile. Shares may trade below the offer price, especially if the valuation was aggressive, market conditions weaken or early investors sell. The expiry of lock-up restrictions may add further selling pressure. Dividend expectations should be treated with similar care: a stated policy is relevant, but future distributions will still depend on cash generation, investment needs and board decisions.

A simple discipline for IPO investing

Before subscribing, an investor should be able to pass three tests. First, the business model and its principal risks should be understandable. Second, the valuation should leave room for ordinary setbacks rather than require every forecast to be met. Third, the ownership and governance structure should give outside shareholders confidence that value will be shared fairly.

If those answers are unclear, there is no obligation to invest simply because the subscription window is closing. Waiting until after listing can provide more information, even if it means giving up the possibility of an initial gain.

The UAE’s expanding capital markets will continue to create opportunities for investors. The most useful discipline is to treat an IPO as the beginning of a company’s public-market record, not as the conclusion of the investment case. A strong brand or an oversubscribed offer can make an IPO visible. Only the quality of the business and the price paid can make it a sound investment.

Dr. Arif Khurshed is Professor of Finance and Programme Director of the part-time MSc Financial Management at Alliance Manchester Business School, The University of Manchester.

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