Mergers & Acquisitions

The UAE has an active mergers and acquisitions market, driven by its position as a global business hub, diversification efforts away from oil dependence, and government initiatives to attract foreign investment. M&A activity spans various sectors including real estate, hospitality, healthcare, technology, and financial services. Recent reforms allowing 100% foreign ownership have further stimulated M&A activity, making the UAE an attractive destination for both regional and international transactions.

Key legal considerations in UAE M&A transactions include foreign ownership restrictions (though these have been relaxed in many sectors), regulatory approvals required for certain industries, employment law implications for transferring employees, real estate ownership rules, intellectual property transfers, tax implications including VAT and the corporate tax, competition law clearances for larger transactions, while maintaining strict compliance with AML/CFT compliance with anti-money laundering requirements.

Due diligence is the process of investigating a target company before completing an acquisition. It involves reviewing the company’s financial records, contracts, assets, liabilities, legal compliance, intellectual property, employment matters, and any previous/pending litigation or disputes. Due diligence is crucial because it helps the buyer understand what they are acquiring, identify risks and potential deal-breakers, and negotiate appropriate protections in the transaction documents.

In an asset purchase, the buyer acquires specific assets of the target company, leaving the corporate entity with the seller including liabilities. In a share purchase, the buyer acquires the shares of the target company, thereby acquiring the entire company including all its assets and liabilities. The choice between these structures depends on factors including tax efficiency, the desire to exclude certain liabilities, regulatory requirements, and the complexity of the target’s asset base.

The regulatory approvals required depend on the sector and size of the transaction. Common approvals include those from the relevant Department of Economic Development for trade license amendments, sector-specific regulators (such as the Central Bank for financial services, healthcare or telecommunications regulators), the UAE Competition Authority for transactions meeting certain thresholds, and approvals from free zone authorities if the target operates in a free zone.

UAE Labour Law provides that in the event of a transfer of business, employees’ contracts continue with the new employer, and their length of service is preserved. However, the practical implementation depends on the transaction structure. In a share purchase, employment relationships continue automatically. In an asset purchase, employees may need to be terminated and rehired, with end-of-service benefits paid by the seller. Careful planning is needed to manage employee transitions.

UAE Labour Law provides that in the event of a transfer of business, employees’ contracts continue with the new employer, and their length of service is preserved. However, the practical implementation depends on the transaction structure. In a share purchase, employment relationships continue automatically. In an asset purchase, employees may need to be terminated and rehired, with end-of-service benefits paid by the seller. Careful planning is needed to manage employee transitions.

The standard warranties in UAE M&A transactions include statements about the target’s corporate status, ownership of assets, accuracy of financial statements, compliance with laws, material contracts, employment matters, intellectual property, and absence of litigation. Indemnities provide for compensation if specific risks materialize. The scope and limitations of warranties and indemnities are heavily negotiated and depend on the relative bargaining power of the parties.

The timeline for an M&A transaction in the UAE varies depending on complexity. A straightforward acquisition might be completed in 4-6 months, while complex transactions involving regulatory approvals, extensive due diligence, or multiple parties can take one or more years. Key factors affecting timing include the need for regulatory approvals, the complexity of due diligence, negotiation of transaction documents, and any conditions precedent to closing.

An M&A lawyer in Dubai can assist with structuring the transaction for optimal legal and tax efficiency, conducting legal due diligence, drafting and negotiating transaction documents, obtaining necessary regulatory approvals, managing the closing process, and advising on post-acquisition integration. Experienced M&A counsel is essential for navigating the complexities of UAE corporate law and ensuring a successful transaction.