Mergers and acquisitions (“M&A”) are a cornerstone of corporate growth strategies in the United Arab Emirates (“UAE”). M&A transactions allow businesses to expand their market share, diversify operations, acquire innovative technology, and enter new sectors. However, while the commercial potential of a deal may appear attractive, its success ultimately hinges on understanding the legal risks and obligations attached to the target company. The key to addressing these risks lies in conducting Legal Due Diligence (“LDD”).

Understanding Legal Due Diligence in the UAE Context

In any M&A transaction, due diligence can cover several areas: financial due diligence, tax due diligence, commercial due diligence, and operational due diligence.

Legal Due Diligence is the process of thoroughly examining a target company's legal affairs before a deal is finalized. In the UAE, this is especially crucial since the regulatory landscape is far from uniform, with rules varying significantly across the mainland, individual emirates, and the free zones. A well-executed LDD will typically investigate the following:

• Corporate structure and governance: including incorporation documents, shareholding records, and compliance with the applicable jurisdiction’s company regulations.
• Contracts and obligations: reviewing major commercial contracts, supplier and customer agreements, leases, joint ventures, and financing arrangements to assess enforceability and termination risks.
• Regulatory compliance: verifying the validity of trade licenses, sector-specific approvals, and compliance with federal and emirate-level laws such as foreign ownership restrictions or competition rules.
• Litigation and disputes: identifying ongoing litigation, arbitration, or potential claims that could impact the transaction.
• Assets and intellectual property: ensuring proper ownership, registration, and protection of tangible and intangible assets under UAE law.
• HR and labour law compliance – reviewing employment contracts, HR policies, and workforce practices to ensure alignment with the UAE Labour Law and relevant free zone employment regulations.

Why Legal Due Diligence Matters?

In the UAE’s fast-evolving market, conducting Legal Due Diligence is not a mere formality, but is a critical process that can determine the valuation, structure, and ultimate success of a transaction. Its core objective is to identify hidden legal risks, ensure compliance with the applicable regulatory framework, and provide clarity on potential liabilities that may affect the deal. The findings can directly influence negotiations, such as prompting price adjustments, requiring the seller to offer specific indemnities, or demanding remedial action before completion.

A thorough LDD also streamlines the approval process with government bodies, which is especially important for businesses that need multiple permits or face foreign ownership restrictions. Ultimately, the insights gained from LDD are used to draft strong contractual safeguards, like representations and warranties, and conditions precedent. These protections hold the seller accountable for any issues that come to light after the deal is finalized, limiting exposure and helping to ensure the buyer receives the value they expect from the transaction.

Consequences of Skipping or Rushing LDD

Overlooking LDD, or conducting it only at a surface level, can leave buyers exposed to significant risks tied to the seller or the target entity. These risks include inheriting undisclosed debts, becoming drawn into costly litigation, or facing regulatory penalties. Beyond financial and legal exposure, insufficient due diligence can also create operational hurdles, such as uncertainty over the ownership of key assets or difficulties in enforcing critical contracts

In the UAE, the consequences of non-compliance can be severe. Operating without the required trade license or approvals may result in heavy fines, suspension of activities, or even closure of the business. Such risks not only carry immediate financial costs but can also undermine the long-term strategic value of the transaction itself.

What We Offer ?

At MBG Legal, we provide end-to-end legal support for M&A transactions in the UAE, including:

• Drafting & Reviewing Key Documents: Drafting of key agreements such as Term Sheets, Letters of Intent, MOUs, Share Purchase/Asset Purchase Agreements, and escrow arrangements.
• Comprehensive Legal Due Diligence Report: A due diligence report covering corporate governance, regulatory compliance, contracts, liabilities, disputes, IP rights, and labour law affairs of the target company.
• Regulatory & Structuring Advisory: Transaction structuring, UAE competition law, foreign ownership rules, and Ultimate Beneficial Ownership compliance.
• Transaction Execution: Final agreements, notarization, share transfers, corporate approvals, and regulatory filings.
• Post-Completion Integration: License amendments, constitutional document updates, and ongoing legal advisory for transition matters.

We combine deep local expertise with international standards to deliver clear, tailored, and commercially focused solutions, helping in navigating the transaction with clarity.

Conclusion

In the UAE’s competitive and highly regulated market, Legal Due Diligence is a critical safeguard in any M&A transaction. It protects the buyer’s investment, strengthens negotiating positions, and ensures alignment with the jurisdiction’s complex legal requirements. By carefully examining the target company’s legal standing before closing, businesses can proceed with confidence, assured that the transaction is not only commercially attractive but also legally sound.