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Mastering Due Diligence for Successful M&A Transactions

Mastering Due Diligence for Successful M&A Transactions


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Merger and acquisition (M&A) transactions often turn out to be too complex, which justifies the need for due diligence. In this edition of our newsletter, we will explore why due diligence proves to be the cornerstone to mitigate business risks. Successful entities seek professional Mergers & Acquisitions Advisory in the UAE, discovering opportunities and fostering transparency between sellers and buyers.

Let’s find out how the transformative potential of due diligence can shape the trajectory of your M&A efforts.

What Makes Due Diligence Indispensible?

During mergers and acquisitions, due diligence serves as a compass for both the involved parties. It nurtures systematic investigation to identify potential risks, liabilities, and opportunities in the deal. A meticulous scrutiny of the different aspects of due diligence empowers stakeholders to make informed decisions. This fortifies the foundation of the newly configured business entity.

The Scope of Due Diligence during M&A Activities

The scope of due diligence is vast and calls for professional insights for a realistic assessment. The following parameters come within the ambit of due diligence.

1. Corporate

This involves evaluating the completeness, accuracy, and currency of filings, licenses, and registers. Often, the ultimate beneficial ownership and shareholders register necessary rectification pre-completion to prevent the buyer from inheriting any liabilities. In certain jurisdictions, evaluating corporate registries, including the onshore ones in the UAE may be challenging. However, ongoing efforts are being made to authenticate the accuracy of the records.

2. Related Party Contracts

The scope of due diligence involves examining the contracts with related parties. This helps in identifying undervalued agreements or cases where assets of profits may have been diverted from the target entity. Professional teams also consider director loans and discuss whether or not such agreements should persist post-completion.

3. Finance

Due diligence measures related to finance involve the evaluation of security over the target entity and indebtedness. This includes intra-group debt and any personal guarantees or related arrangements regarding debt facilities. This stringent scrutiny from experts helps in identifying repayments necessary to remove charges, where applicable. These are often identified through financial due diligence.

4. Commercial

Commercial due diligence involves an analysis of the key customer and supplier contracts of the target. This includes their terms and currency, with specific attention to agency or distributor arrangements in the UAE. This is due to the persisting challenges of termination due to the existence of local laws. Professionals also scrutinize contractual provisions that address risks related to change of control. Experts also provide necessary recommendations for the post-completion process.

5. Intellectual Property (IP)

This involves a comprehensive analysis of registered and unregistered intellectual properties and their ownership status. Due diligence teams also examine their dependency on third-party licenses. They make sure that employment contracts contain adequate IP provisions and measures for rectifying the same, like IP assignment documents.

6. Litigation

Due diligence for litigation scrutinizes the involvement of the target in recent litigation cases. Experts take a look at their status to evaluate associated risks. Accordingly, they recommend protective measures while dealing with transaction documents to mitigate the exposure of the buyer to latent liabilities arising from pre-acquisition litigation.

7. Employment

Employment is a crucial parameter of due diligence measures. It involves the assessment of contractual arrangements with employees and contractors. In the process, they examine compliance with statutory rights and obligations and identify potential loopholes. Professionals also provide recommendations for new employment contracts, particularly for senior management. They also examine whether key employees should continue working with the target company after the acquisition.
8. Property
This aspect of due diligence involves the scrutiny of properties leased or owned by the target entity. Scrutiny is carried out on lease expiration dates, terms, or any breach of contract.
9. Regulatory
Due diligence on regulatory norms includes the examination of the regulatory requirements of the target. This includes licenses and consents, which undergo thorough assessments. Due diligence teams also recommend necessary updates before or after the completion to fix potential issues.

Professional Due Diligence Services in the UAE

A robust legal counsel can significantly help business entities simplify the challenges during M&A transactions. Partnering with the IMC Group, known for its transaction advisory services in Dubai, brings professionalism and expertise to the table. This team of experts has a proven track record of facilitating cross-border and domestic corporate transactions.

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