QUESTION ONE – In your experience, what are the key considerations that international clients should have the front of mind when assessing a target company for acquisition in your jurisdiction?
An in-depth check of the scope of the licence held by the United Arab Emirates (UAE) target company is key. The scope of the acquisition must be very carefully defined. Questions to be asked include ‘What kind of activities the acquiring company will pursue through the target company?’ The answer should include activities that maybe only occasionally carried out.
Once this is clearly understood, the UAE licence of the target company must be carefully reviewed to make sure all the intended activities can be legally carried out post-completion. Omitting this review may put you in trouble as it is not always possible to expand the licence of the target company, post-completion, to include activities mistakenly left out of the review.
The review of financials is also key. At the end of the process, the financial situation of the target company should be crystal clear, with precise details regarding all the existing debts. A good understanding of the history of the target company is also important, to have at least an idea of when and how the outstanding debts will be repaid and what kind of financial dynamics to expect at the initial stage after the merger.
QUESTION TWO – How would you, as a professional advisor, approach the due diligence process to ensure all bases are covered prior to a sale price being agreed?
It is important to have clear ideas and a plan at the outset. We should ask about the scope of due diligence, and define that in clear terms, making sure a financial due diligence is not delivered when an IP one was expected.
It is also important to explore the rationale behind the due diligence, asking questions such as – Who are the stakeholders? Who will benefit from the due diligence? What is the purpose of the transaction?
Once you have a reasonable understating of this scenario, you are better positioned to define the scope and the outcome of the due diligence and this will give you focus, guidance and will save costs as well.
In practical terms, we have developed a very articulate and complete process, including checklists that we employ at the outset of our engagement.
Depending on the characteristics and the time frame of the case at hand, we pick the right checklist and stick to it. Of course, not all the items in the checklist will necessarily be useful to the process. For example, the section related to IPR and software may not be entirely relevant in the acquisition of a food and beverage business (although IP issues are relevant in virtually every M&A case). The importance of the checklist is to have a predefined process to follow. Since there are so many large and small details to take into account, it is safe to have a shared and reliable set of rules for the team to work together more effectively.
QUESTION THREE – Once an acquisition is agreed, what are the key clauses or warranties and indemnities you would recommend for inclusion in the sales contract?
In any due diligence exercise, extensive contractual statements in the form of warranties are essential. The scope and content of such clauses will vary depending on the case at hand, but, in general terms, common areas of warranty protection should include key aspects such as the employees’ status, the value of the assets, or any pending or threated litigations.
With regard to the employees’ status, for example, when assisting the buyer it is often desirable to include specific warranty clauses that will require the seller to warrant that during a specified period prior to the transaction there were no redundancies, or that there has been no change of employment terms in relation to remuneration. For a transaction in the technology sector, IP warranties are of primary importance.
Warranties in this domain are likely to require detailed disclosure of all the target’s IT systems and IT relevant contracts such as software development or software maintenance agreement. Whatever the content of the specific clause, you will have to spend a lot of time just refining your drafting. For example, if you are assisting the seller, you will always want to soften the text of warranty clauses, so that you better protect your client. Another key point in negotiation is related to the time limit for the warranties.
Tips for completing a successful cross-border acquisition
Find the right partner in the jurisdiction you want to operate in. Previous demonstrated experience with M&A is essential. Transactional lawyers, as such, are not necessarily the right advisor for a complex M&A case.
Have a post-closing plan in place. This is more for the client to prepare, but it is desirable that we as lawyers teach the client that the due diligence process and even the transaction itself are only the starting point. These are delicate negotiations that could take weeks or even months to complete after the deal is closed.
Don’t lose sight of the resources and costs involved. Due diligence can easily become an endless process in complex projects. Costs should be carefully estimated and agreed before work starts.
This excerpt was taken from the IR Global Guide: International Deal Making: Assisting Acquirers. To view the full publication, please click here.
