UAE has established itself as an economic hub in the MENA Region. Investors are presented with numerous options on how to enter the UAE market. Some establish their own companies while others opt to enjoy the market reputation, existing processes, and manpower of established companies in the UAE through mergers or acquisitions. Due diligence investigation is a great tool to analyze the potential pay-off and risks of investments. It enables the decisionmakers to have a certain level of understanding of the company to make informed decisions and chart the course of transactions. While financial due diligence may yield impressive numbers, having a full legal due diligence is equally important to ensure that buyer is getting a comprehensive understanding of risks and liabilities.
What does a legal due diligence investigation usually cover?
The scope of most legal due diligence investigation includes the assessment of the following:
- Company documents such as memorandum/articles of associations, minutes of shareholders and board of directors meetings; share certificates; licenses and permits
- Human resources records on organizational structure; key personnel contracts, pension schemes, HR policies, and employment issues;
- Material contracts depending on the industry type including joint ventures and agency agreements;
- Financials including loan agreements and business plans;
- Assets including intellectual property and real rights;
- Administrative and court cases as well as pending Alternative Dispute Resolution matters
Various factors will also affect the scope of the due diligence examination. The cooperation of the subject company, the organization of the resources and documents to be examined, as well as the allotted time and budget for the due diligence. It is therefore important that the clients’ concerns and objectives for the merger or acquisition are clearly established at the outset so the due diligence investigation can be focused. It is also important to engage lawyers who have experience and exposure to the industry of the subject company.
Due diligence investigation results can aid in structuring the transactions. It will serve as a guide for preparation of the transaction documents identifying the warranties and guarantees needed from both sides. It can also be used to justify the price, offer or any conditions attached to the sale transaction. Even after conclusion of the sale, a due diligence report can serve as a guide for the new management to tackle issues identified, to adopt to or restructure the organization, and as a general guide to the various facets of the company’s operations. If you want to know how a company really fares, a due diligence investigation is a must.