I OVERVIEW OF M&A ACTIVITY2
The rapidly changing macroeconomic environment in 2015 due to geopolitical tensions and the anticipated decline in spending by governments on the back of weakened oil prices resulted in the total value and volume in the Middle East and North Africa (MENA) region declining to US$7.78 billion and a total of 193 reported deals. Deal activity in the MENA region recorded the lowest level of activity in the past six years.3
The Middle East and Africa took the last spot in overall M&A activity, with total deal value of US$47.3 billion, almost 21 per cent lower than 2014 and its lowest level since 2011.4
The markets in the United Arab Emirates (UAE) saw a significant decline in 2015 when both the number and value of deals significantly declined. Over the past 12 months, the value of M&A transactions with Middle East involvement reached US$56.2 billion.5
The UAE accounted for 46 per cent of outbound M&A activity from the Middle East, while acquisitions by companies in Qatar and Saudi represented 36 per cent and 10 per cent, respectively. Domestic and inter-Middle Eastern M&A fell 16 per cent to US$11.3 billion compared to 2014. Investment banking fees from completed M&A touched US$213.1 million in 2015, an increase of 4 per cent compared to the previous year.6
Although the UAE market has been robust during the past few years, primarily as a result of a strong regulatory and political environment and infrastructure, the decline in oil prices and the political environment in the Middle East has slowed down deal activity. According to the MARC M&A Attractiveness Index 2013,7 the UAE has recently emerged as one of the frontrunners among the list of countries that have the potential to develop into future growth markets for M&A activity, and the UAE was ranked 19th in the list of countries across the world in terms of M&A activity. The ranking is based on an analysis of factors such as a country’s regulatory and political environment, economic and financial factors, infrastructure and assets, technological capabilities and socioeconomic characteristics.8
In addition to political and economic stability in the UAE, the country is undoubtedly attracting global investors because of government investments in infrastructure, healthcare and utilities. Within the UAE, a principal driver for domestic M&A activity remains consolidation, and particularly in the construction, industrial and consumer products, health, insurance and financial services sectors.
Other factors that have affected the level of M&A activity generally, and ones that are not unique to the UAE, are extended due diligence and the disparity in the valuations of target companies between prospective sellers and buyers. In addition, corporate disclosure is historically limited in the Middle East, and UAE laws do not facilitate the level of disclosure that would be available in more mature jurisdictions. This has made it challenging to do deals. That said, the new Commercial Companies Law No. 2 of 2015 (CCL) aims to establish stricter obligations for the maintenance of company records and accounts.
The value of announced M&A in the Middle East in 2015 rose 13 per cent to US$35.2 billion from 2014, the highest annual total since 2008, according to a report by Thomson Reuters. In 2015, the number of inbound M&A deals rose by 29 per cent to US$5.4 billion as compared to 2014.
The most significant, and one of the largest, M&A deals that was completed in 2015 was DP World’s acquisition of Economic Zones World FZE from Port and Free Zone World FZE for a transaction value of US$3.5 billion.9
With significant infrastructural changes occurring in the UAE, such as investments by the government in a large number of infrastructure projects, the expansion of the national airport and numerous transportation projects – and despite a decline in oil prices – the UAE continues to be an attractive destination for international investors, and is significant as a business hub for the Middle East and Africa region.10 In the first quarter of 2015, the MENA region witnessed 29 M&A outbound deals and 17 inbound M&A deals amounting to an aggregate deal volume of US$8058 million.11
The volume of deal activity will continue on a perhaps a more cautious, but still upward, trend of M&A activity in the UAE with the impending Expo 2020 that will be hosted by the emirate of Dubai. This is expected to bring in a significant amount of foreign direct investment into the UAE, particularly Dubai, and is likely to boost Dubai’s role as a regional hub for servicing inbound and outbound M&A and private equity (PE) activity across the MENA region. As corporates in the UAE focus on growth and with significant international investor interest, particularly of PE firms in the UAE market, M&A activity in the UAE is forecast to continue on an upward trajectory.
II GENERAL INTRODUCTION TO THE LEGAL FRAMEWORK FOR M&A
The legal framework for M&A activity in the UAE is found primarily in the CCL. The CCL (Law No. 8 of 1984) was replaced by Federal Law No 2 of 2015 on Commercial Companies (new CCL). The new CCL was issued by the President of the UAE, His Highness Sheikh Khalifa bin Zayed Al Nahyan, in April 2015, and came into force on 1 July 2015.
Existing companies (unless they fall under an exception) were required to comply with the provisions of the new CCL by June 2016. In June 2016, the Cabinet approved a proposal by the Ministry of Economy to extend the period for existing companies in the UAE to comply with the new CCL by one more year. Subsequently, companies governed by the new CCL are required to comply with the provisions of the new CCL by 30 June 2017.
The CCL is also supplemented by laws in the free zones where M&A activity is not restricted by the CCL. A free zone is formed separately through the enactment of federal and local laws dealing specifically with that particular free zone, and each of the free zones follow their own implementing regulations under which separate rules apply on the acquisition and mergers of free zone companies. The implementing regulations of most of these free zones contain very basic regulations on the merger or amalgamation of two companies, an exception being the Takeover Rules Module (TKO), which applies specifically in the Dubai International Financial Centre (DIFC).12
One principle to keep at the fore in terms of any M&A activity in the UAE is that a number of restrictions is imposed on foreign investors. The CCL requires nearly all types of foreign-owned companies in the UAE (outside of those constituted in a designated UAE commercial free zones)13 to have at least 51 per cent14 of its shares owned by a UAE national or a company wholly owned by UAE nationals.15
Under the CCL, two companies can merge by:
- a the passing of a resolution by the shareholders of a company (adopted by 75 per cent of votes in favour where a quorum of 75 per cent of the shares are present or represented) resolving to dissolve and merge with another company;
- b the valuation of the net assets of the dissolving company in accordance with the provisions in the CCL on evaluation of shares;
- c the passing of a resolution by the shareholders of the acquiring company (adopted by 75 per cent of the votes in favour where a quorum of 75 per cent of the shares are present or represented) resolving to an increase in capital; and
- d the issuance of shares by the acquiring company to the shareholders of the dissolving company.16
Unlike certain other jurisdictions in the Middle East, the UAE does not have a formal takeover code to regulate public takeovers and mergers. There are three recognised exchanges in the UAE: the Abu Dhabi Stock Exchange (ADX), the Dubai Financial Market (DFM) and NASDAQ Dubai. The M&A regimes are generally the same for companies listed on the ADX and the DFM, and each is governed by the CCL. The DIFC M&A regime is applicable to target companies listed on NASDAQ Dubai, which is very different to the DFM/ADX regime and is broadly similar to the regime in the United Kingdom.
For companies listed on the DFM/ADX, the main regulator is the Emirates Securities and Commodities Authority (ESCA). Therefore, a merger or acquisition of a publicly listed company would require the approval of the ESCA. The various disclosure and reporting requirements for an acquisition are as prescribed by the ESCA. In June 2012, the ESCA published new disclosure and share dealing rules concerning DFM/ADX listed companies that require persons or entities intending to acquire 30 per cent or more of the shares in a DFM/ADX listed company to notify the DFM/ADX. It is pertinent to note that upon such notification the DFM/ADX may block the proposed transaction, following consultation with the ESCA, if it has reason to believe that the purchase may harm the interests of the DFM/ADX or the national economy. In addition, the DFM and the ADX regulate the listing and disclosure rules applicable to their respective markets, and the Department of Economic Development in Dubai and Abu Dhabi is responsible for certain procedural matters.
M&A transactions in the DIFC involving public companies are principally regulated by the TKO, which is part of the Rulebook administered by the Dubai Financial Services Authority, the financial regulator of the DIFC.17
Acquisitions can be done in the UAE as follows.
i Exchange offer
Even though neither the CCL nor the rules and regulations of the exchanges of the UAE have takeover rules or regulations, an offeror can make a contractual offer to the shareholders of the target to acquire their shares if the consideration payable is shares in the acquiror, and subsequently the target becomes a subsidiary of the offeror.
ii Cash offer
An offeror can make a contractual offer to the shareholders of the target company in exchange for cash. Similarly, if the offer is accepted, the target company becomes a subsidiary of the acquiror.
iii NASDAQ Dubai
Pursuant to the TKO, the offeror may offer to acquire the shares of the target for cash or for shares. If the target is a company constituted pursuant to the laws of the DIFC (where 100 per cent ownership by a foreign entity or national is possible), the offeror who acquires 90 per cent of the shares of the target has a ‘squeeze-out’ right to buy the remaining 10 per cent from the minority shareholders who have declined its offer. However, there are no scheme of arrangement or statutory merger provisions that can be used to acquire a target.
M&A in the UAE, in comparison to M&A in developed markets such as the Unites States and the United Kingdom, is in a fairly nascent stage with no reported hostile takeover bids and robust shareholder activism. The CCL does not contain any provisions restricting a hostile bid, and the concept of a shareholder rights plan and other takeover defence mechanisms is generally absent in practice.
The rules issued by the ESCA shall be applicable in the case of mergers of public joint-stock companies (JSCs). In addition to the ESCA, certain industry-based regulatory bodies such as UAE Central Bank may have a role to play in certain M&A transactions based on the industry in which the parties to the transaction operate.
III DEVELOPMENTS IN CORPORATE AND TAKEOVER LAW AND THEIR IMPACT
i Corporate law
The restriction imposed on foreign ownership under UAE law presents an unacceptable loss of control for many potential foreign investors. It attracts criticism, as it does not allow foreigners to have sufficient control, and there have been discussions in the past to relax these restrictions in order to attract and encourage foreign investment.
The new CCL does not alter the provisions of the previous version of the CCL in terms of foreign ownership and control of companies. The new CCL provides for certain key changes, including but not limited to mergers and amalgamations. A few of the key amendments pertaining to mergers and amalgamations are as follows:
Under the new CCL, the two companies involved in a merger are required to enter into a merger contract, and such contract should address key aspects such as the total consideration for the proposed transaction and the method of arriving at the consideration. The CCL also requires the merger contract to be approved by a 75 per cent majority of the existing shareholders of both companies. Additionally, the notice of the proposed general meeting should include a summary of the merger contract. Under the CCL a shareholder holding at least 20 per cent of the share capital who dissents from the proposed merger may appeal before a court of law within 30 working days from the date of approval of the merger by the general assembly.
Under the CCL, the acquirer is not required to make a pre-emptive offer to its existing shareholders when issuing shares to shareholders of the merging company subject to approval by at least 75 per cent of the existing shareholders of both companies.
A dissenting shareholder (of the acquiring company or the merging company) may notify the company within 15 days of passing the merger resolution that it wishes to withdraw from the company and recover the value of its, his or her shares. Pursuant to the draft CCL, the valuation is to be assessed by the parties, and on failure to arrive at a mutual agreement, it shall be referred to a committee formed by the Minister of Economy and Commerce.
Under the CCL, shareholders in a limited liability company (LLC) are allowed to pledge their shares to third parties. This could potentially increase M&A activity, utilisation of LLCs in financing structures and liquidity in terms of shares, and is a positive step as lenders may be more inclined to advance funds to LLC shareholders if they can obtain security over shares in the LLC by way of a pledge. This could potentially mark the beginning of a significant form of leverage, which is uncommon in the GCC markets. In addition, the CCL imposes a corporate governance framework on all UAE companies by requiring companies to maintain accounting records at their head office for a minimum period of five years (Article 26 of CCL) to explain transactions of the company in an effort to increase transparency. In addition, all companies are required to apply international accounting standards and practices.
Other significant changes in the CCL include the valuation of the net assets of the merging company in accordance with the ‘non-cash consideration’ valuation procedures for LLCs or JSCs.
ii Takeover law
There are no specific ESCA proposals to reform the takeover regulations in the immediate future, but the CCL states that in the event of mergers of public JSCs, the rules issued by the ESCA shall be applicable. The new law includes a ‘placeholder’ for the introduction of a takeover code by the ESCA.
On 18 February 2014, the ESCA issued Authority Board of Directors Decision No. 10 of 2014 concerning the regulation of listing and trading of shares of private JSCs. In June 2012, the ESCA published new disclosure and share dealing rules concerning DFM/ADX listed companies, which require persons intending to acquire 30 per cent or more of the shares in a DFM/ADX listed company to notify the DFM/ADX. The DFM/ADX may block the transaction, following consultation with the ESCA, if it has reason to believe that the purchase may harm the interest of the DFM/ADX or the national economy. Other than these amended disclosure and share dealing rules, there is no takeover code or other similar regulation issued by the ESCA that govern takeovers.
IV FOREIGN INVOLVEMENT IN M&A TRANSACTIONS
An obstacle to foreign involvement in M&A transactions in the UAE, and a common theme in this chapter, is the restriction on foreign ownership, referred to above. In addition, the majority stakes in many UAE companies are controlled by the government or families that are often reluctant to sell their stakes or give voting rights or representation on their board to foreign shareholders. Additionally, the lack of mandatory tax filing requirements in the UAE often poses as a deterrent to robust M&A activity due to the unavailability of information for the assessment of risks of the target’s business as well as valuation of assets of the target. Therefore, the majority of foreign M&A activity into the mainland jurisdiction (sometimes referred to as ‘onshore UAE’) tends to take the form of minority stakes by way of joint venture.
The UAE also has a large number of free zones (in excess of 38 across a range of industries). A free zone is an area where 100 per cent foreign ownership of companies is permitted. The free zones have been established primarily for the purpose of attracting foreign investment into the UAE. The UAE free zones have their own laws and regulations that are different to those in mainland UAE. In particular, companies established in the free zones are outside the regime of the CCL and have been expressly excluded from its operation.
The UAE itself has shown considerable interest in making foreign direct investments abroad that enhance its image as a luxury and leisure hub, including investments over a wide range of sectors, from football clubs to prime pieces of real estate, the airline industry and the hotel industry. The UAE has diversified its investment portfolio in recent years by investing in a variety of assets, including stock exchanges and private banks. Sovereign wealth funds in the UAE continue to invest state funds, primarily in the form of minority stakes, in different types of foreign companies.
The UAE was ranked 14th on the latest A T Kearney Global Foreign Direct Investment Confidence Index, which measures present and future prospects for FDI flows.
V SIGNIFICANT TRANSACTIONS, KEY TRENDS AND HOT INDUSTRIES
Over the past 12 months, consumption led sectors such as healthcare, hospitality, real estate, energy and power, construction, consumer products and financial services were areas of focus for M&A activity in the UAE.18 Other attractive sectors for M&A activity in the MENA region were banking, healthcare, the hospitality sector, the manufacturing sector and professional firms and services that led the overall deal activity.
The first quarter of 2015 witnessed the largest deal with Middle Eastern M&A involvement on a global level – the US$1.9 billion offer for a stake in Canary Wharf Group Plc by Stork Holdings Ltd, jointly owned by Qatar Investment Authority and Brookfield Property Partners.19
The Middle East witnessed 13 M&A deals with a value of US$1.5 billion in the first quarter of 2016, and the UAE attracted the highest number of deals during this period. The total number of deals is the same as that in the same period last year, but the total deal value declined by 39.7 per cent from US$2.5 billion. The highest-valued UAE deal of the quarter was the US$292 million acquisition of e-commerce platform Souq.com by Standard Chartered Private Equity Limited, Baillie Gifford and International Finance Corporation, in a funding round that valued the company at US$1 billion.
Deal value in the telecommunications sector grew significantly, totalling US$494 million in the first quarter of 2016, compared with US$223 million in the same period last year. Other sectors that experienced considerable growth were construction, which recorded US$135 million, compared with US$41 million the previous year, and transport, with deal value totalling US$90 million compared with US$21 million in 2014.
A key transaction in the UAE was the merger of Al Noor Hospitals Group and Mediclinic International Ltd, thereby creating Mediclinic International Plc. The merger has created the third-largest international healthcare group outside the United States. South Africa’s Mediclinic acquired UAE-based Al Noor for US$2.2 billion. The deal was structured as a reverse takeover with Mediclinic set to take on Al Noor’s London listing as it primary listing.20
PE firms played a major role in M&A activity in the UAE in 2015. Fajr Capital acquired a stake in Dubai-based Cravia Group, a food and beverage platform.21 PE firms Warburg Pincus and General Atlantic acquired a 49 per cent stake in UAE-based payments processor Network International from The Abraaj Group for an undisclosed deal value.22
PE firm Actis divested its stake in Emerging Markets Payments Group to Dubai-based Network International for a deal value of US$340 million. The deal created the largest payments processor in the MENA region.23
In the construction sector, Colas SA acquired the stakes previously held by Anglo American in the capital of six jointly owned or operated companies that have historically operated under the name Tarmac in the United Arab Emirates, Oman and Qatar.24
Many transactions in the MENA region and particularly the UAE were driven in the past by sovereign wealth funds. Sovereign wealth funds in the MENA region, and particularly in the UAE, have been drivers of outbound investments in 2015, despite a cut in spending because of weak oil prices. Sovereign wealth funds acquired stakes in the hospitality sector across the globe.
In April 2015, the Abu Dhabi Investment Authority the world’s second-richest sovereign wealth fund, agreed to buy a 50 per cent stake in three leading Hong Kong hotels from a group led by New World Development, a Hong Kong-based property company. Investment Corporation of Dubai, the Emirate’s sovereign wealth fund, purchased two luxury hotels: the W Hotel in Washington DC, and a majority holding in the Mandarin Oriental in New York. It also took a minority stake in the One & Only resort in Cape Town, South Africa.25
As a direct consequence of the financial crisis, many UAE companies have been forced to undergo a restructuring of their operations to ensure better efficiency and productivity. Companies seeking to deleverage have helped offset some of the slump in M&A activity.
While perhaps not unique to the UAE, many mid-market deals are often complex due to the family-owned business mentality that exists in the region. This mentality makes it more challenging to do deals, and UAE companies have difficulty splitting management from ownership. Many owners are also emotionally attached to their assets, which cuts across and can hinder M&A activity and the disposal of assets.
Activity in the hospitality sector is likely to increase not only in the UAE but in the GCC region as well due to events such as Expo 2020 and World Cup 2022 that will be hosted in Qatar – this is likely to cause a surge in deals in the hospitality sector with M&A and PE funding being used to accelerate such deals.26
VI FINANCING OF M&A: MAIN SOURCES AND DEVELOPMENTS
According to data from Thompson Reuters, and Freeman Consulting, Middle Eastern investment banking fees reached US$178.2 million during the first quarter of 2016, a 17 per cent decline compared to the value recorded during the first quarter of 2015 and the lowest annual start for investment banking fees in the region since 2014.
With respect to investment banking fees, fees from completed M&A transactions totalled US$54.4 million during the first quarter of 2016, a 22 per cent decrease compared to a year ago and the slowest first quarter for M&A fees since 2013. Syndicated lending fees accounted for nearly two-thirds of the overall Middle Eastern investment banking fee pool, the highest first quarter share since fee records began in 2000.
Following the financial crisis, financial institutions have taken a more cautious approach that should force greater disclosure in the medium to long term, thereby ensuring more careful evaluation and differentiation of investment opportunities.
As discussed above, the changes in the CCL permitting shareholders in an LLC to pledge their shares to third parties could potentially increase M&A activity and offer comfort to financial institutions to advance funds to LLC shareholders.
A majority of companies in the UAE are dominated by government and quasi-government enterprises and family conglomerates. A majority of family-run businesses in the UAE tend to run businesses that are heavily reliant on agencies or franchises of foreign brands in the UAE and are therefore subject to restrictions in their contractual arrangements with the foreign brands. Additionally, the restrictions on foreign ownership that exist in the UAE tend to significantly limit the available target companies in the UAE for cross-border M&A.27
VII EMPLOYMENT LAW
UAE Labour Law No. 8 of 1980 (as amended) governs employment law in the UAE.
Since January 2011, the maximum age that foreign workers can be employed in the UAE has been raised from 60 to 65 years old. Expatriate and foreign workers who are over 18 years of age (and less than 65 years old) who have not previously worked in the UAE can now apply for short-term work permits valid for 60 days, which can be renewed up to five times.
Again since January 2011, university and college students sponsored by the institution in the UAE at which they are enrolled can legally work part-time if they apply for a part-time work permit from the UAE’s Ministry of Labour. A part-time employment permit (valid for a year) is also available to expatriate residents working full time who have a valid labour card and to expatriate wives sponsored by their husbands. The part-time employment permit allows the holder to be employed in more than one part-time job.
VIII TAX LAW
There is no federal tax law in the UAE, but each of the seven emirates has its own tax law. There is no personal income tax, capital gains tax, value added tax or withholding tax in the UAE. Currently, there is legislation in force in the emirates of Abu Dhabi, Dubai and Sharjah establishing a general corporate tax regime.
In Abu Dhabi, according to the Income Tax Decree of 1965 (as amended), every chargeable person who conducts trade or business (including the rendering of services) in Abu Dhabi is subject to pay tax on his or her earnings on a sliding scale up to a maximum of 55 per cent. There are taxes on oil and gas companies at rates specified in the relevant concession agreement, a flat rate on annual profits of branches of foreign banks, and a flat rate service tax on hotel services and entertainment.
The Dubai Income Ordinance of 1969 and Dubai Income Tax Decree (as amended) provide that all companies that conduct trade or business in Dubai are required to pay tax on their earnings on a sliding scale up to a maximum of 55 per cent. Oil companies pay up to 55 per cent tax on UAE-sourced taxable income, and banks pay 20 per cent. The taxable income of banks is based on their audited financial statements. As for oil companies, the computation of their taxable income is based on their concession agreement. It is pertinent to note that free zones in the UAE offer a 50-year tax holiday, thereby exempting taxation of corporations.
In Sharjah, the Income Tax Decree of 1968 (as amended) specifies that there shall be imposed on the taxable income of every chargeable person generating income from carrying out trade or business in Sharjah tax on a sliding scale of up to 55 per cent.
Although there are tax laws currently in practice in certain emirates, only oil, gas and petrochemical companies and branch offices of foreign banks are required to pay tax in the UAE. Therefore, unless M&A transactions are connected to these activities, the UAE tax regime is not a consideration that ought to be taken into account.
IX COMPETITION LAW
A new Competition Law (UAE Federal Law No. 4 of 2012) was enacted in October 2012, which applies to establishments that engage in economic activity, hold any intellectual property right in the UAE or engage in economic activities that affect competition within the UAE. The Law came into force on 23 February 2013, and companies regulated by it were granted a grace period of six months to ensure their practices are in compliance with the new Law. The Competition Law seeks to regulate restrictive agreements and abuses of dominant position in the market by key players.
It is pertinent to note that certain sectors such as telecommunications, financial services, oil and gas, small and medium-sized enterprises and certain entities owned or controlled by the federal and emirate governments are excluded from the application of the Law.28 Violations of the Competition Law are punishable by a fine or suspension of operations of the company’s business for a specified period of time. The Ministry of the Economy (MoE) may grant exemptions from certain provisions of the law. A Competition Regulation Committee will be responsible for overseeing competition issues in the UAE.
A key highlight of the Competition Law is its merger control provisions. These provisions play a major role in M&A activity in the UAE, as the Competition Law provides for a mandatory filing and suspension of a transaction pending clearance by the Competition Regulation Committee, MoE. Under the Competition Law, a notification must be made to the MoE at least 30 days prior to date of the transaction requesting clearance where a transaction results in the acquisition of direct or indirect control; may affect competition in a market by creating a dominant market position; and the market share threshold is met. The market share threshold will be notified by way of the Implementing Regulations. The MoE has to pass a resolution clearing the proposed transaction within a period of 90 days or may seek additional information, in which case the duration for processing the application will be extended for 45 days. Based on the transaction, the MoE may resolve to grant approval or conditional approval, or to prohibit the proposed transaction.
The Competition Law also provides for fines and penalties for non-compliance with provisions of the law. Some of the key fines imposed by the Competition Law are as follows:
- a failure to notify a transaction that has to be notified – 2 to 5 per cent of the company’s annual revenue derived from sales of applicable products or services. In the event the amount cannot be calculated, a fine ranging between 500,000 and 5 million dirhams may be imposed;29
- b implementation of a transaction before grant of approval – a fine of 50,000 to 500,000 dirhams may be imposed;30 and
- c entering into restrictive agreements or abuse of dominant position in market – a fine of 500,000 to 5 million dirhams may be imposed.31
Additionally the MoE may impose sanctions such as suspension of business activities of the infringing company.
Therefore, companies proposing to enter into an M&A transaction will have to consider their activities and the impact of the Competition Law to ensure proper compliance.
In the Middle East, and especially the UAE, the market for M&A activity remains stable and positive, albeit cautious, despite continuing geopolitical uncertainty and low oil prices. While Abu Dhabi has curtailed spending to compensate for the oil price decline, Dubai, continues to see several M&A deals that are driven primarily by private sector and energy interests.32
The main appetite of both strategic and financial buyers is in the UAE, Saudi Arabia, Qatar, Kuwait and Oman, and informed regional and international investors are looking at a number of opportunities in the MENA region. Valuations are clearly one catalyst, but the changing geopolitical landscape also plays a key role.
M&A experts predict that several sectors such as education and healthcare, financial services, manufacturing, TMT and consumer goods will continue to be of interest to investors.
In the UAE, while corporate executives exercise economic care, the forecast looks positive as the economy has taken strong strides towards recovery, and M&A and PE activity is on the increase, although investors are naturally more cautious, and restructuring is emerging as a means of facing new economic realities, both globally and regionally.
The UAE does not have robust M&A laws and takeover regulations compared to the United States, Europe and certain countries in Asia, a primary reason being the ownership of business in the UAE – approximately 80 per cent of non-oil GDP within the Middle Eastern region is owned by family-owned business groups. These family-owned businesses are privately held, and their operational control is maintained by the family members.33
Massive economic reforms targeted at economic diversification and the increased participation of the private sector across the Gulf region are expected to boost M&A and PE deals in the region.34
Regionally, other Gulf states are working hard to position themselves at both the heart of regional politics, and as economic and financial centres, particularly Qatar and Saudi Arabia. Whether such competition will affect the UAE’s prominent position as a regional hub for servicing inbound and outbound M&A and PE activity across the MENA region is difficult to predict, but there is no doubt that the UAE is improving its business environment in order to maintain that position.
1 DK Singh is the managing partner and Stincy Mary Joseph is a senior associate at KBH Kaanuun.
2 All statistics and references in this chapter are derived from publicly available sources but have not been independently verified.
3 Gulf News, 15 March 2016.
4 International Business Times, 8 January 2016.
5 Gulf News, 18 January 2016.
7 Published by the CASS Business School M&A Research Centre.
8 MARC M&A Attractiveness Index 2013.
10 June 2015, www.ameinfo.com.
11 Mergermarket Group, Middle East and North Africa Capital Confidence Barometer, 12th Edition, April 2015.
12 The DIFC is an onshore capital market designated as a financial free zone.
13 See Section IV, infra, for a further brief commentary on UAE free zones.
14 In the case of some activities the threshold is even higher.
15 Or nationals of one of the countries of the Gulf Cooperation Council (GCC).
16 Articles 276–280 of Commercial Companies Law No. 8 of 1984 regulate the mergers of companies.
17 The Takeover Rules Module comprise the Takeover Rules referred to in the Markets Law 2012.
18 Gulf News, 15 January 2016.
19 Gulf News, 13 April 2015.
20 www.reuters.com, 2 February 2016.
21 www.fajrcapital.com, 16 May 2016.
22 www.reuters.com, 26 November 2015.
23 www.reuters.com, 2 March 2016.
24 www.reuters.com, 11 January 2016.
25 www.thenational.ae/business/economy/arabian-gulf-sovereign-wealth-funds-pick-new-plays, 15 July 2015.
26 Alpen Capital, GCC hospitality Industry Report, September 2014.
28 Article 4, Competition Law.
29 Ibid., Article 17.
30 Ibid., Article 18.
31 Ibid., Article 16.
32 EY Global Capital Confidence Barometer, May 2016.
33 Deloitte press release, 29 June 2014.
34 Gulf News, 22 June 2016.