Private M&A in the UAE

Individuals or legal entities considering conducting an M&A transaction in the UAE should keep in mind that such transactions are becoming increasingly complex. Therefore, prior to closing an M&A deal in the UAE they should carefully analyze all legal aspects involved, paying particular attention to the latest changes in M&A regulation in the UAE.  

UAE: DD of M&A Transactions

In an attempt to cut DD-related costs, potential investors paying special attention to:

• transferring employees;
• pension schemes;
• limitation related to property ownership;
• hidden costs;
• limitations related to foreign ownership;

Sellers’ Responsibility

Prior to signing an M&A agreement in the UAE, potential investors should keep in mind sellers’ responsibility for false statements. Parties considering conducting an M&A transaction in the UAE may exclude any liability clause except for those arising from gross negligence, fraud or deliberate misconduct.

Publicly Available Information

Information about UAE-registered private companies is very hard to come by. Thus, DD of private companies in the UAE is impossible without close cooperation with their senior management & stakeholders. In addition to verifying information provided by sellers, potential purchasers are advised to search government-maintained registries & databases. 

UAE: Financing Private M&A Transactions

Prior to acquiring UAE-registered private companies, potential purchasers should familiarize themselves with the funding structure of such transactions. The financing of M&A deals in the UAE is usually provided in the form of corporate loans extended to trustworthy purchasers or purchasers capable of obtaining a guarantee of trustworthy guarantors. The most commonly used securities include guaranty checks, corporate guarantees & target companies’ shares.

Termination Rights

Sellers/purchasers have the right to terminate an M&A contract in the UAE if the counterparty provides false information or if fraud was committed when concluding the contract.

Guarantees

Warranties & compensations are usually included in purchase agreements. Guarantees relating to the selling of private companies’ shares in the UAE are quite numerous & may cover:

• corporate information;
• licenses;
• accounts;
• financial records;
• assets;
• debts;
• guarantees;
• insurance;
• compliance with M&A legislation;
• litigation;
• insolvency;
• IP & IT;
• personnel;
• AML legislation;
• real estate;
• taxes; 
• environmental issues.

Insurance

Sellers considering concluding a private M&A deal in the UAE are highly recommended to purchase a warranty insurance. By doing so, they’ll be able to minimize transaction-related risks & provide additional guarantees to purchasers.

UAE: Selling Shares Through M&A Transactions

No taxes are levied on the transfer of companies’ shares on the mainland. However, if a document acknowledging the transfer of shares is signed in the presence of a notary, a commission is charged. 

Regulatory authorities in the free zones normally charge fees (vary from zone to zone) for sending notifications or accepting applications. 

Transferring ownership of shares in the UAE is considered a transfer of title to the property, regardless of whether the property is located on the mainland or in a free zone. The commission rate varies depending on an emirate & the nature of the property interest transferred.

UAE: Selling Assets of Private Companies

Transferring immovable assets or interest may require payment of transfer fees to the relevant authority. In addition, such a transaction could potentially result in a VAT liability.

Transferring Employees

Selling shares through an M&A transaction in the UAE implies that the contract with the employee remains in effect (unless parties have agreed otherwise). Selling assets of private companies in the UAE doesn’t mean that employees are automatically transferred. If purchasers express interest in hiring sellers’ employees, the latter must dismiss them & cancel their visas. Following that, purchasers will have to to rehire the employees & pay for the extension of their visas.

Sellers may need to terminate employees’ contracts by sending them a notice & paying contractual fees. If the employees aren’t willing to work for purchasers, they may be dismissed as per the terms of their contracts.