Mergers and Acquisitions mean overtaking of one company by another company. The deals of M & A are performed to increase the sustainability of acquiring a company and to improve the market area. This blog deals with the scenarios of mergers and acquisitions in Dubai, their rules, and needs. Please read it and get enlightened.
Back to topWhat is meant by Mergers and Acquisitions?
Merger
When two nearly the same size company join hands to form a new big and separate company, it is called a Merger of companies. The two companies joined hands to increase their efficiency, capabilities, and sales. The agreement of Merger is equally agreed upon, and both companies are equal partners in the newly formed company.
Acquisitions
The acquisition takes place when one company folds another company entirely by the company purchase. Buying a company or its shares completely can be done either friendly or in a hostile manner. The main agenda behind the business acquisition is to form a larger operational unit.
Why is the M&A done?
The M&A is done to form a more extensive business setup globally to increase the market value as well as the share value of the company. Some of the reasons for M&A are stated below-
- M&A helps the newly formed company to increase its scale of economy. Through this process, they can now purchase and hold higher quantities of raw materials, labor, etc.
- M&A helps the company to form a more considerable share capital value in the market. As discussed earlier, when two similar operational companies come together, the cost of their shares rises.
- Through M&A, The trading capacity of the company also increases as the geographical area increases.
- The financial capacity of the company also increases. The economic withdrawal of two companies is more significant than one single company.
- It helps to increase the production capacity of the company.
Past scenarios of M&A in the UAE
In UAE, the M&A market has faced many of the same challenges that have been affecting the M&A market worldwide. During the 2010-2015 M&A, deals worth USD 105.5 billion were witnessed with GCC companies. According to the report, the UAE saw USD 21.29 billion from M&A deals, which accounts for 62 percent of total sales during that period. The M&A activities have gained tremendous traction over the years due to robust fundamental geographical locations and an increase in investment in the UAE. From 2015 onwards, there was a constant increase in the M&A turnover, and from there it never turned its back towards globally facing issues.
Present Scenario of M&A in the UAE
Mergers & Acquisitions (M&A) deals in the UAE more than doubled in 2018 to USD 10.4 billion (Dh 38.19 billion), according to data from Merger Market, a provider of M&A data and intelligence. The Middle East and North Africa region {MENA} as a whole experienced a significant hike in deals and deals value in 2018. In 2018, M&A made total sales worth USD 26.76 billion, resulting in a hike of 67 percent from last year. Abu Dhabi National Oil Company (ADNOC) played an essential role in deal flows in the UAE with a series of seven divestments on its energy assets worth USD 6.2 billion. The total deal count in the region last year jumped by 15 deals to 148, compared to 133 in 2017.
Mergers & Acquisitions (M&A) deals across the GCC countries are expected to pick up pace in 2019 as companies across critical sectors are seeking cost savings, synergies, and efficiencies to compensate for the slowing economic growth across the region. If a businessperson like you wants to taste the success of a company's profit, start a business in Dubai as soon as possible to avail the benefits of Dubai Expo 2020 and M&A in the late 19th and early 20's.
During the first quarter of 2019, the number of closed M&A transactions in the GCC increased by 39 percent compared to the first quarter of 2018, according to data from S&P Capital IQ and GCC stock exchanges analyzed by the Kuwait Financial Centre. The growth will continue as Dubai Expo 2020 is coming, which will surely increase the M&A market by leaps and bounds. Investors are waiting for this golden opportunity, so if you are planning for mergers or acquisitions, we at Commitbiz LLC will assist you in the M&A procedure.
Back to topLegal Framework
The corporate entities usually form their company in two areas-
- Freezone
- Mainland but outside the free zone.
Mainland Merger and Acquisitions –
The legal framework of M&A activity is bound to be in commercial companies law (CCL). The CCL requires all types of foreign-owned companies [situated outside the UAE commercial-free zone area] to have at least 51 percent of their shares owned by UAE nationals or company-owned wholly by UAE nationals. Under CCL, M&A can take place by.
- By passing a resolution by shareholders of the company (75 percent of vote quorum).
- By undertaking the valuation of the net assets of the dissolving company.
- By passing a resolution by shareholders to acquire the company (75 percent of the vote quorum).
- The issuance of shares by the acquiring company to the shareholders of the dissolving company.
The rules of CCL apply to companies that are listed in the Abu Dhabi Stock Exchange [ADX], and the Dubai Financial Market [DFM].
Free Zone Merger and Acquisitions-
Free zones are specially designated areas within the UAE established to attract foreign investment by encouraging companies to set up businesses and locate their operations. Each free zone has its administration and licensing authority responsible for issuing free zone licenses and registering companies. The main entities involved in the Free zone are private entities, so there is a restriction on the transfer of shares. Private entities have to get permission from the free zone authority before mergers and acquisitions.
Two methods can do M&A in the private free zone. The typical process is the purchase of shares or assets of another company. Another way is through a statutory merger. The type of Merger should be mentioned in the merger contract.
Dubai Expo 2020 is coming which will bring more opportunities for M&A. As discussed earlier 2019 will face a massive rise in this sector as the eyes of prominent businessmen are towards the spreading of business which will benefit them with substantial profit returns. The government is planning to give 100 percent return to the foreign established company and will also motivate them to expand their business, Merger and Acquisition is one the best way for growing the business.
Commitbiz LLC is excelling in providing world-class business management services to the businessperson. For further queries, you can Contact Us anytime.
Back to topWhat is a merger?
When the two nearly the same size companies join hands to increase their efficiency, capabilities, and sales to form a new big and separate company, it is called the Merger of companies. The agreement of the Merger is equally agreed upon, with both being equal partners in the newly formed company.
What is Acquisition?
When one firm buys another company outright, it is called an acquisition. Purchasing a firm or its shares in its whole might be done in a friendly or hostile manner and the principal goal is to create a larger operational unit.
What was the UAE’s M & A scenario from 2010 to 2015?
The country saw 21.29 billion USD which accounted for 62% of the total sales.
What was the GCC Merger and Acquisition picture from 2010 to 2015?
Deals worth USD 105.5 billion were witnessed.
Where are the CCL (Commercial Companies Law) rules listed for the UAE mainland m&a process?
The rules are listed in the Dubai Financial Market and Abu Dhabi Stock Exchange.
