Due Diligence in UAE Mergers and Acquisitions: What Buyers Must Review Before Completing a Deal

Mergers and acquisitions in the UAE require rigorous legal, financial, commercial, and regulatory review due to the country’s unique combination of federal laws, Emirate-specific regulations, free-zone frameworks, and sector-level approvals. Due diligence is not merely procedural in the UAE -- it determines valuation, defines contractual protections, and ultimately reduces post-closing risk. Below is an in-depth, UAE-specific overview of due diligence expectations.

 

1. Corporate and Legal Due Diligence
   
   

The foundation of UAE M&A analysis begins with assessing legal compliance under Federal Decree-Law No. 32 of 2021 on Commercial Companies. The law requires the buyer to review, without limitation:
• Trade licence and permitted activities
• Memorandum and Articles of Association, including amendments
• Share registers and past transfers
• Board authority, management appointments, and powers of attorney
• Whether the entity is mainland, free-zone, or financial free-zone based
It is also essential to confirm whether foreign ownership restrictions apply and whether the current structure complies with UAE investment and licensing rules.

 

2. Licensing and Regulatory Approvals
   
   

Because UAE entities are licensed at Emirate or free-zone level, the acquirer must ensure the target’s licences are:
• Valid, active, and reflective of actual activities
• Free from compliance warnings or fines
• Not limited or conditional
The buyer must also verify whether the change of ownership requires approval from authorities or regulators -- especially in banking, insurance, financial services, education, healthcare, and telecommunications.

3. Competition and Merger Control Review
   
   

The UAE’s competition and merger control regime regulates transactions that may affect market concentration. Due diligence must assess:
• Market share and dominance risks
• Whether the transaction triggers a merger-control filing
• Filing timelines and approvals required prior to completion
Failure to comply can cause delays, penalties, or even render the transaction void.

4. Beneficial Ownership, AML, and Sanctions Compliance
   
   

UAE law requires most companies to maintain an Ultimate Beneficial Owner (UBO) register. Buyers must confirm:
• Accuracy of UBO records
• AML compliance systems and reporting history
• Screening of shareholders, directors, and key customers
For high-risk sectors, internal compliance manuals and audit logs may also require review.

5. Economic Substance and Tax Position
   
   

The UAE’s Economic Substance Regulations apply to entities conducting specified activities. Buyers must confirm whether the target undertakes relevant activities and whether filings have been submitted correctly and on time. VAT registration, returns, penalties, and wider tax positions must also be reviewed. Entities holding intellectual property or performing financing activities require additional scrutiny due to stricter substance tests.

6. Operational and Commercial Due Diligence
   
   

This includes detailed analysis of:
• Customer and supplier contracts
• Agency and distribution agreements
• Change-of-control restrictions
• Intellectual property rights, including trademarks
Buyers must also consider commercial disputes or customer claims that may affect profitability or brand value.

7. Employment and HR Due Diligence
   
   

Employment relationships are governed by Federal Decree-Law No. 33 of 2021. Due diligence includes reviewing:
• Employment contracts and HR policies
• End-of-service benefit liabilities
• Pending labour complaints
• Emiratisation requirements and compliance
Where there is heavy reliance on expatriate staff, immigration-related risks and costs must also be considered.

 
Real Estate and Asset Ownership

If the target owns or leases premises, buyers must review:
• Title deeds
• Lease agreements
• Land-department registrations
• Service-charge records and zoning compliance
Certain Emirates impose ownership restrictions on non-UAE nationals, requiring careful structuring.

9. Data Protection and Technology Risks
   
   

The UAE’s data-protection framework requires businesses handling significant personal data volumes to maintain formal privacy systems. Buyers should assess:
• Data-protection policies and consent mechanisms
• Cybersecurity incident records
• Cross-border data-transfer practices

10. Disputes, Litigation, and Contingent Liabilities
    
    

The buyer must identify all civil, commercial, labour, regulatory, and criminal matters, including:
• Ongoing litigation or arbitration
• Police or regulatory complaints
• Settlement obligations and indemnities
This ensures accurate evaluation of contingent liabilities and supports negotiation of warranties and indemnities.

11. Final Stage: Transaction Structuring and Risk Allocation
    
    

Once reviewed, due diligence findings inform:
• Purchase-price adjustments
• Conditions precedent and required approvals
• Warranties, indemnities, and escrow arrangements
• Integration and governance plans
Effective due diligence converts hidden risks into negotiated protections, enabling UAE M&A deals to close with clarity and confidence.

Conclusion

Conducting comprehensive due diligence is critical to the success of any M&A transaction in the UAE. Given the country’s unique regulatory landscape -- incorporating federal laws, Emirate-level rules, free-zone frameworks, and sector-specific approvals -- buyers must undertake a thorough review of legal, financial, operational, and regulatory matters. Robust due diligence not only ensures compliance and validates the target’s standing but also informs valuation, guides risk allocation, and strengthens contractual protections. By identifying potential issues and mitigating exposure early, effective due diligence equips buyers with the confidence and clarity necessary to execute transactions efficiently, protect investments, and secure long-term continuity in the UAE market.

 

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