Pre-Tadawul Nomu: why independent valuation is the IPO-eve conversation

There is a quiet convention in Saudi Arabia's pre-IPO market that deserves more scrutiny. A company approaching listing on the Tadawul Nomu parallel market — or the main board — will typically ask the audit firm that signs its accounts to also prepare the pre-IPO valuation. The convenience is obvious: the firm already has the data. The conflict is equally obvious: the firm also has a commercial interest in a relationship that extends beyond the listing.

This does not produce bad valuations. It produces consistent valuations — and consistency, at the wrong moment, is a liability. When the market prices the offering at a level that materially diverges from the valuation the firm prepared, the firm's ongoing audit relationship is at risk. The incentive structure skews the valuation toward the number the sponsor most wants to see, not the number the market will most likely deliver.

The alternative is an independent valuation from an advisor that has no ongoing revenue relationship with either the company or the audit firm. The deliverable triangulates three methodologies — discounted cash flow grounded in operating unit economics, trading comparables from regional listed peers, and a transaction benchmark set — and produces a corridor, not a point. That corridor is what shareholders should test themselves against before testing it against the market.

The value of this exercise is not in the number. It is in the alignment it creates among shareholders before the roadshow begins. A shareholder group that has debated, stress-tested, and internalised a defensible valuation corridor will not panic when the order book tells them something they did not expect. A shareholder group that has accepted a convenient number without challenge will.