Nice One, a Saudi online cosmetics retailer founded by two brothers, Omar AlOlayan and Abdulrahman AlOlayan, will soon announce its IPO pricing. The IPO of the company, which is only seven years old, is expected to bring fresh momentum to the kingdom’s market and will set a precedent for more such listings.

With a private component of 5.5 million shares, the public offer of 34.65 million shares at SR32–SR35 each is meant to raise SR1.11billion–SR1.21billion ($323 million). Masarrah Investment Company, Mohammed Abdulaziz Al Habib & Sons and Frontier Investment Management Partners have been added as cornerstone investors, with commitments of up to 12% of the $323 million IPO.

Nice One is a pioneer in the kingdom’s IPO landscape in several respects:

1.) Seeking primary funds through an IPO is not a common move for Tadawul listings.

2.) It is the first e-commerce company to be listed in the Saudi market, as per Global Industry Classification Standard (GICS) classification, thus adding diversity to a market traditionally dominated by sectors such as healthcare, food, banks and industrials.

3.) Cornerstone commitments, or the strategy of bringing in big investors early on, is a trend that is slowly emerging in Saudi listings.

Primary shares focus on growth

Out of the 34.7 million Nice One shares that will be on offer, 5.5 million will be new shares, raising up to SR192.5 million. The proceeds of the primary component will support capex, brands and sales channels and will develop logistics and technology capabilities.

“Companies with a strong focus on growth tend to offer a primary component. Nice One has historically achieved a strong growth profile and will achieve it going forward,” Ali Khalpey, Head of Equity Capital Markets at EFG-Hermes, told Zawya.

In the first nine months of 2023, the company reported SAR 512 million in revenue and SAR 29 million in net income. By 9M 2024, revenue surged 38% year-on-year to SAR 696 million, while net income soared to SAR 65 million in the first quarter alone, marking a 125% increase.

“Offering a primary component is certainly a positive development. Investors are willing to give companies capital to grow. In the case of Nice One, there is a capital need to continue to enhance its growth profile,” Khalpey added.

Historically, in Tadawul listings, owners have sold existing shares representing 30% of the company. However, the $1.2bn IPO from Saudi Arabia’s ADES Holding in 2023 bucked the trend with the relatively rare use of a primary offer (70% primary shares and 30% secondary) for fundraising. Its IPO was the largest ECM transaction of the year.

Similarly, this year, Almoosa Health Company, which is targeting a $449.2mln IPO, is issuing 9.3 million new shares and nearly 4 million shares from its owner, Abdulaziz bin Abdullah Almoosa Investment Company.

A nice start, but challenges remain

The $322 million IPO of Nice One is likely to rank as the third-largest Saudi IPO in 2024 following Fakeeh Care Group’s $763 million IPO and Almoosa’s targeted IPO of $449.2 million.

But Nice One stands out not just for its scale but as the first major e-commerce IPO. “Nice One trails behind only [in comparison with] the healthcare sector, which leads the IPO scene with two offerings totalling a grand $774 million and an average size of $387 million. The food sector follows closely, averaging $271 million per IPO. As the first e-commerce listing, Nice One signals a shift toward online and consumer-driven industries,” said Anusha Agarwal, Research Analyst at Century Financial.

Nice One in general offers 1200 international and local brands. Twenty percent of their product revenue comes from their own exclusive products. With IPO proceeds coupled with good financial performance, Nice One’s revenue and net income margins could broaden, with proceeds supporting products and sales channels.

“We can expect good demand from the retailer and institutional branch, looking at the numbers and brand recall,” Agarwal said.

Saudi Arabia’s beauty market is growing rapidly, with online beauty and care expected to grow at a 12% CAGR, driven by young demographics, high luxury spending, and increasing e-commerce adoption.

“However, any slowdown in economic growth, purchasing power, or e-commerce adoption could challenge Nice One,” she added.

The beauty and personal care market in Saudi Arabia is fiercely competitive, especially in e-commerce. “Nice One competes with well-established global giants like Amazon.com and retail leaders such as SHEIN and Sephora, both of which operate online and offline in the kingdom,” Agarwal said.

Cornerstone commitments

Cornerstone commitments in Tadawul IPOs are a relatively new phenomenon. Strong backing from such investors usually help deals in a volatile market.

Generic drugmaker Jamjoom Pharma’s $336 million IPO in 2023 was one of the first deals that had cornerstone investors in it.

The key objective here is to bring strong investors that are meant to be additive long-term shareholders as well as strategic in their nature

Nice One has secured Masarrah Investment Company, a well-established Saudi entity, and Frontier Investment Management Partners, a globally focused firm with $3.3 billion in AUM, as cornerstone investors.

“Frontier Investment Management Partners is one of the leading managers in the MENA. They have a strong reputation for backing growth companies. They have been active in all our transactions, and the founder has been an early-stage investor for the last 15 years in the region,” Khalpey from EFG-Hermes said.

(Reporting by Seban Scaria; editing by Daniel Luiz )
(seban.scaria@lseg.com)