The need for Due Diligence in Mergers and Acquisition in UAE

COVID-19 has affected most SME business sectors in 2020 and the current year 2021. The impact of the pandemic still exists in current market which is forcing many businesses to close their businesses and face financial losses.

With the start of COVID -19 vaccination and re-opening of markets, many companies which were having good market position pre-covid are planning to continue their activities either by merging with other business entities in the same sector or selling out their business.

At this point, due diligence is required, which is the process of investigation or verification that takes place before entering into an agreement with a target entity to determine the risk and unexpected/unforeseen liabilities which may arise in the future.

The buyer/investor, before taking over or merging with other entity, needs an assurance of what they are getting and would need to know several important details. Some of them would include:

• Fair valuation of the entity, what he is buying, nature of the business, and sustainability
• Asset condition- wear and tear, useful life
• Aging of receivables and inventory
• Intellectual property and resources that the entity has ( man-power skill and other resources)
• Any onerous or binding contracts
• Liabilities and guarantees made by the entity or group companies
• On-going litigation and any government proceedings against the entity
• Relationships with existing customers, major customer dependencies
• Lead pipelines and prospects of potential customers
• Unusual income or expenses which result in a misrepresented financial report – window dressing, inter-company activities, etc.
• Dependence on key employees and the likelihood of their tenure
• Other financial and operational details

The due diligence will help the investor to decide whether the deal is valuable while comparing to their portfolio or not. Due Diligence also provides financial forecasts and key assumptions to the buyer to assess the feasibility of the forecast.

A good Due Diligence will cover wider details that include financial, operational, and technical information – going far beyond financial statements or a statutory audit report.

Such a Due Diligence will cover the below areas:

Financial Information

• Review of historical (say, last three to five years) financials and the current period’s trial balance to give detailed financial ratio analysis and hence, projections of the target future performance.
• Analyze Product/service/branch wise revenue and profitability and recommendations on key operational decisions such as produce v/s buy and close v/s open markets (or outlets in the case of retail) etc.
• Details of contracts with customers who have contributed to a large portion of revenue.
• Give details for pricing mechanism and considerations (including discounts, promotions, etc.) and historical evolution of pricing for all revenue streams.
• Details of other income, including any financial income, grants, the release of provisions, etc., recorded during the period under review.

Liabilities and other areas

• Employee End of service calculations and detailed provision workings
• Details of any other liabilities with respect to other stakeholders (staff – excluding EOSB, vendors, Federal Tax Authority, shareholders, etc.)
• Details of any identified off-balance-sheet contingencies and/ or commitments, including any lease obligations
• Details of any debt from third parties, including related parties with background, and progressive repayment details
• Documents pertaining to all pending Leases, Guarantees, Major payable commitments
• Details of pending litigations if any, including litigations pertaining to frauds, IT security breaches, thefts, etc.

Compliance

• Review the legal documents Trade licenses, Memorandum of Association(M.O.A.)
• Review the details of legal due (Tax and other due)

HLB HAMT has a team of Due Diligence experts in UAE who can assist in recognizing possible risks and potential opportunities and make the process of mergers and acquisitions easier to handle, thorough and diligent.

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07:38 25 Apr 21

HLB Hamt is highly recommended! They have the quality of services that would satisfy your needs. I'm glad I found them.

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I HAD A GOOD EXPERIENCE WITH HLB HAMT DUBAI. THEY HAVE A VERY PROFESSIONAL TEAM, GOOD QUALITY OF SERVICES, GOOD VALUE... FOR PRICE.I RECOMMEND THIS COMPANY.read more

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16:16 28 Jun 20

Experience with HLB Hamt in audit experience is great pleasure. They deploy well qualified accounts team for audits.... And the amount of checking they perform give the management of the company confidence that internal controls are well in place. We are glad to see they have high standard of audit practices.read more

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Professionally managed firm with commitment to the engagements taken. My company and its group are assigning our... requirements for last 12 years to HLB and we don’t have any negative remarks on any assignments.read more

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07:14 23 Jun 20

In my opinion, HLB Hamt is one of the best professional firms in UAE after big4. Excellent client service, professional... and competent staff and timely delivery are their strength. Over the years they have developed the infrastructure and skill set to handle multiple verticals ie, audit, tax services, consulting, IT support etc.Wishing HLB Hamt team all the very best.read more

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Thank you Team HLB hamt...Your internal auditing team put the good amount of time and inputs in helping the... organisation making considerable improvements throughout the organisational working structure and helps in building the better business.Thanks.read more

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18:17 06 Jun 20

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06:32 04 Jun 20

Very professional team. Vimal has always given us good solution advice for various Software and IT Infra projects. We... are very Extremely satisfied working with him and his team. Wishing them success.read more

Basil Daniells

05:55 03 Jun 20

I have worked with HLB as a partner of Sage for about 2 years, they were dedicated to the success of the partnership... and kept aligned with the business plan that was agreed between our two companies. They are always ready to go the extra mile for a customer and don’t shy away from challenging circumstances. Keep up the good work and wish you all the success in the future.read more

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Team of well qualified and organised professionals. Their reports are not based on numbers first they will understand... their client and their business. They are highly recommended and trust worthy.read more

Radz de Jesus

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We're glad to have found HLB Hamt to conduct the IT audit and risk assessment for our organization. We have learned a... lot from their team during that first project. And since then, we've continued to be in touch with them. Mr. Vimal especially is very good at presenting technical concepts in simple yet interesting ways that non-IT and business people alike would easily catch. We are very happy with the professionalism and quality of service they provide. They leave their clients nothing short of satisfied. Highly recommended.read more

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