WHY DO UAE BUSINESSES OPT FOR STRATEGIC BUSINESS EXITS?
There are many reasons a business will want to work towards an exit strategy. Below, we highlight a few reasons that we will discuss further:
With the ever-changing UAE market, businesses can have changing demands, trends or other regional influences. It becomes increasingly necessary for businesses to develop or enter an exit strategy. Businesses that exit certain sectors and/or areas can reallocate and/or redirect business resources towards areas that may serve the business better.
Business-specific changes to a company’s vision can lead to exiting specific business areas or types of operations. This allows businesses to focus on what the company does best or launch new areas of business.
In certain circumstances, attractive offers may emerge; the most common ones include a merger, acquisition, or buyout. Businesses may consider these opportunities as potential exit strategies if they perceive interest from third parties. This can allow businesses to be able to exit, but to do so profitably.
WHAT ARE THE KEY TYPES OF EXIT STRATEGIES FOR UAE BUSINESSES?
The most common exit strategies for a UAE business can be summarised as the three primary types as follows:
Selling the ownership of a business to another entity, normally for a lump sum or a sequence of scheduled payments, represents the most common exit strategy. Acquisitions from competitors, investors or companies wanting to expand a market are a common practice for those wanting to grow their business and grow into new markets through an acquisition as opposed to trying to develop the market from scratch.
MERGERS AND ACQUISITIONS (M&A):
Mergers and Acquisitions (M&A) illustrate working together with companies for mutual benefit. M&A includes acquired/existing businesses through acquisition, joint venture, or merger. The idea is to combine forces for upstream greater market access, or downstream service area, while having some experience/operations from both parties.
Where a business has faced dysfunctionality or negative profitability or success, company liquidation is the only avenue worth consideration for exit. Liquidation encompasses selling the assets, paying off debts, and shutting down all operations, including unwinding and deregistering the UAE company. If a proper unwinding is not completed, then the company’s General Manager and the shareholders may incur fines and liabilities. Fulfilling closing chores and ensuring documentation is complete is very important.
WHAT ARE THE STEPS TO PREPARE FOR EXITING A UAE COMPANY?
Below is a brief overview of the necessary measures leading up to an exit from a UAE Company:
- ASSESS BUSINESS VALUE:
Have a proper valuation done of the Company in order to fix the correct price. Disputes can then be avoided during the exit negotiations.
- FINANCIAL PREPARATION:
Arrange all the financials, settle outstanding debts and ensure all of the financials are completely documented for an easy transition during the exit process.
- OPERATIONAL OPTIMIZATION:
Before the exit, prepare the company for the departure of owners to increase its efficiency and profitability. This will be attractive to a prospective buyer/partner.
- LEGAL AND REGULATORY CONSIDERATIONS:
The exit process would benefit from an analysis of the legal and regulatory environment in the UAE.
- Company Laws: Know the company laws of the UAE relating to dissolution procedure, shareholder agreements and employee settlements to remain in compliance.
- Contract Handling: Tax implications of a selected exit strategy need to be considered; an expert opinion can lessen such burdens within the confines of the law.
- Employee Rights: Asset valuation will greatly impact tax liability. One should consider hiring an expert to assist in ensuring the right approach from the tax liability point of view and the acquisition or merger viewpoint.
NAVIGATING FINANCIAL & TAX CONSIDERATIONS WHEN EXITING A UAE COMPANY
Financial and tax considerations should always sit at the top of your checklist when calculating a suitable exit strategy for your UAE business:
Identify the tax consequences of the exit strategy. Consult with professionals to identify strategies to minimise tax exposure legally.
Asset valuations will impact tax implications. The valuation specialist will identify the associated tax liabilities and factors related to an acquisition or merger.
In addition to legal costs, consider costs associated with severance packages and taxes when considering the exit strategy. For better financial planning of the exit, consider cost estimates for all things relevant to the exit.
A full valuation can help accurately assess what the company is worth, which can help establish a negotiation position during exit to possibly realise a fair transaction for an ownership change.
Get all financial records organised, including a consideration of debts that the business may carry and clear all documentation for the financials to help with the existing process.
CASE STUDIES IN SUCCESSFUL UAE BUSINESS EXITS
Explore local success stories where UAE companies achieved strategic exits through acquisitions:
- Souq.com: In 2017, Amazon completed a successful exit strategy when it acquired Souq.com. As a prime example of a strategic acquisition in the local UAE market, even when it saw Souq.com ultimately disappear in the online shopping atmosphere, the acquisition reinvigorated Souq.com since it rebranded itself as Amazon.ae and offered more online shopping options in a once tight-knit shopping market.
- Namshi: Acquiring Namshi by Emaar Malls was yet another accomplishment of an exit strategy by acquisition. Emaar Malls first acquired 51% of Namshi in 2017; in 2019, Emaar Malls acquired the other 49% so that Namshi could continue growing and expanding.
TAKEAWAY FOR A SUCCESSFUL EXIT STRATEGY
Strategic Planning – The well-structured exit plan is critical in making an exit a success, as is legal compliance under the UAE’s legal framework, which is also important to ensure that there is no confusion and/or the risk of penalties or fines. In addition to this, having transparent financial records and thorough reviews will greatly assist in an exit being a successful exit.
Learning from Success – Drawing insights from successful case studies is invaluable for businesses planning an exit.
In conclusion, complete planning and understanding of your different variables is key, and businesses also need to have sufficient knowledge and consideration around their options for exit in the UAE and what potential implications there are. Learning about your exit options and having an understanding of any legal implications, being financially ready to exit the business, and learning from successful case studies about their exits will help enhance a smooth and successful exit.
Are you ready to ensure your UAE business exits seamlessly? Contact us at [email protected] or call for a free consultation: UAE +971 4 878 6240 | Saudi Arabia +966 56 865 2329
