More Dubai firms are freeing up equity in their companies in a bid to incentivise employees
Dubai is seeing an increase number of companies offering employees and managers equity stakes instead of bonuses, in a bid to ensure more long-term staff loyalty, according to a local legal expert.
“We are seeing a lot of companies freeing up equity for employees,” Lee McMahon, co-founder of Dubai-based law firm Support Legal told delegates at the Arabian Business Startup Academy last week during a panel discussion on the appetite for management buyouts in the region.
“We see a lot of expats who have had businesses here for 10, 15, 20 years and they ultimately want to retire and leave the UAE. What are their options? They either, start paying management more money and give them bonuses, to try and ensure success of the business, or alternatively they start saying ‘we'll let them [management] buy a 25 percent stake in the business,” he added.
Last month, Uber confirmed that it will acquire Dubai-based ride-hailing app Careem for $3.1 billion in Q1 of 2020, in the Middle East’s largest technology transaction, according to the US mobility giant.
The acquisition, which will consist of $1.7bn in convertible notes and $1.4bn in cash, will see Careem become a wholly-owned subsidiary of Uber, but will continue operating as an independent company under the Careem brand and its founders Mudassir Sheikha and Magnus Olsson.
Reports after the deal revealed that employees in Careem had been offered stock options in the technology start-up as part of their packages. The National newspaper reported that this would result in the creation of hundreds of new millionaires among Careem’s staff once the deal is completed, with two hundred employees set to become dirham millionaires and around 75 set to be dollar millionaires.
A Careem spokesperson confirmed to Arabian Business that the company does have a colleague stock option scheme in place but declined to reveal exactly how many of the its 4,000 employees would benefit from it.
McMahon said the offer of equity stakes was becoming more popular as full-scacle management buyout in this region were pretty rare.
“Having a full exit doesn’t always come up very often… A lot of management are expats, so it's very hard for a lot of management to think long-term about acquiring a business,” he said.
He also believed that a lack of support from the financial community for such deals meant managers were often not able to generate the funds needed even if they wanted to orchestra a management buyout.
“You can't go to any bank here and saying ‘hi, I'd like to buy part of a business and I'm a manager’. Banks will not entertain that,” McMahon said.