UAE Buy-Side Advisory: What Buyers Should Assess Before Making an Acquisition Offer
A promising business can look like a great acquisition. But what lies beneath the numbers?
Acquiring an established business can offer investors a faster route into a market, an existing customer base and an opportunity to build on proven operations. In the UAE, where businesses operate across mainland and free zone jurisdictions, evaluating an acquisition requires more than reviewing the seller’s financial statements or agreeing on a price.
A company may have a strong reputation, consistent revenue and promising growth prospects. Yet its performance could depend on a few major customers, its founder’s personal involvement or financial assumptions that have not been fully tested.
For buyers, the challenge is to understand the business behind the numbers. What supports its current performance? What obligations will come with the acquisition? And what will it take to sustain or improve its value after the transaction?
A structured buy-side assessment helps answer these questions before an offer develops into a binding commitment.
1. Establish the True Financial Position
A business’s reported profitability provides a starting point for an acquisition assessment, not the complete picture. Buyers need to understand how earnings are generated, whether they translate into cash and how much capital the company requires to operate.
Consider a business that has recorded steady revenue growth over three years. Its financial statements appear attractive, but a closer review reveals that a substantial share of sales comes from two customers. At the same time, delayed payments are placing pressure on working capital.
These factors could affect the business’s ability to maintain its performance after the acquisition.
A financial review should examine:
- Earnings quality: Identify one-off income, unusual expenses and adjustments that may distort the company’s underlying profitability.
- Cash flow: Assess whether the business collects payments efficiently and generates sufficient cash to meet its obligations.
- Customer concentration: Understand how much revenue depends on a small number of customers and the potential impact of losing a key account.
- Debt and working capital: Review outstanding borrowings, financial commitments, receivables, inventory and the cash needed to support daily operations.
Where appropriate, a quality-of-earnings assessment can help establish a more reliable view of sustainable earnings.
The objective is to determine whether the business has the financial strength to support the acquisition case, rather than relying solely on its historical results.
2. Assess the Business Value Against the Asking Price
A seller’s asking price reflects their view of the business, its history and its future potential. A buyer must establish whether that price is justified by the company’s performance, prospects and associated risks.
Two businesses with similar earnings may warrant different valuations. One might have diversified revenue streams, dependable cash flow and an experienced management team. The other might rely heavily on its founder and have limited visibility over future customer demand.
The difference lies in the quality and sustainability of their earnings, not simply the amount they report.
Buyers can use valuation methods such as comparable company analysis, precedent transactions and earnings multiples, depending on the nature of the business and the information available.
It is also important to distinguish between enterprise value and equity value. Outstanding debt, available cash and agreed purchase-price adjustments can influence the amount ultimately payable to the shareholders.
Beyond the valuation itself, buyers should consider the capital required after completion. If the company needs investment in technology, management or operational capacity, those costs should form part of the overall acquisition assessment.
A commercially attractive price is one that accounts for both the business’s potential and the risks involved in realising it.
3. Verify the Legal, Tax and Regulatory Position
An acquisition transfers more than ownership. Depending on the transaction structure, it may also expose the buyer to existing contractual commitments, unresolved disputes and compliance obligations.
In the UAE, the relevant checks will depend on the company’s legal structure, business activities and jurisdiction. A mainland company and an entity established in a free zone may be subject to different licensing procedures and approval requirements.
Before proceeding, buyers should review the following:
- Ownership and corporate records: Confirm the shareholding structure, the seller’s authority to transfer ownership and any restrictions affecting the transaction.
- Licences and approvals: Verify that the company holds the necessary licences for its current activities and identify any approvals required for the proposed acquisition.
- Contracts and commitments: Examine significant customer and supplier agreements, leases, financing arrangements and contractual obligations that may continue after completion.
- Tax compliance: Review applicable corporate tax and VAT filings, outstanding payments and potential historical liabilities.
- Disputes and contingent liabilities: Identify pending claims, litigation, guarantees and other obligations that could affect the company’s financial or legal position.
- Change-of-control provisions: Determine whether a change in ownership could trigger termination rights, third-party consents or additional approvals.
These checks should be undertaken with appropriate legal and tax advisers who can establish the requirements applicable to the specific transaction.
Identifying an issue before the offer progresses gives the buyer an opportunity to assess its implications and determine whether it can be resolved on acceptable terms.
4. Determine How the Business Will Perform After the Founder Exits
A business may have a capable workforce and an established customer base, yet remain heavily dependent on its owner.
The founder might manage the most important client relationships, make key commercial decisions or hold operational knowledge that has never been formally documented. If these responsibilities cannot be transferred smoothly, the business could face disruption following the acquisition.
Buyers should assess whether the management team can operate independently, whether key employees are likely to remain and whether important customer and supplier relationships will continue under new ownership.
The review should also consider the systems, processes and resources required to support the company’s growth plans.
Where significant dependencies exist, the buyer may need to negotiate a transition period with the seller, introduce employee retention arrangements or invest in additional management capabilities.
These requirements can affect both the financial commitment and the time needed to realise the acquisition’s expected benefits.
Understanding them before making an offer helps establish a more realistic picture of what ownership will involve.
5. Translate Due Diligence Findings Into Deal Terms
Due diligence is valuable not simply because it identifies potential problems, but because it helps buyers decide how those findings should influence the transaction.
For example, if a major customer contract is due to expire shortly after completion, the buyer may need to reconsider the assumptions supporting the valuation. If an unresolved liability is identified, additional contractual protection may be necessary.
Depending on the circumstances, the findings could lead to:
- Price adjustments where the business’s financial position or expected earnings differ from initial assumptions.
- Contractual protections such as appropriate warranties and indemnities addressing identified risks.
- Alternative payment structures including deferred consideration or earn-outs, where commercially suitable.
- Conditions for completion where specific approvals, consents or outstanding matters must be resolved.
- Withdrawal from the transaction when the risks cannot be addressed on acceptable terms.
The appropriate response will depend on the nature of the issue, the proposed transaction structure and the parties’ ability to negotiate a workable solution.
Buyers should also consider whether the acquisition remains viable if growth is slower than anticipated, margins decline or additional investment is required. A deal that only works under the most optimistic assumptions may warrant a revised offer or a decision not to proceed.
From Acquisition Interest to an Informed Decision
Before committing capital, buyers should be able to explain why a particular business fits their investment objectives, what supports its valuation and which conditions would make the transaction commercially acceptable.
This requires connecting the financial findings, legal review and operational assessment into a single investment rationale. It also means distinguishing between risks that can be managed through negotiation and those that could undermine the acquisition itself.
Not every uncertainty needs to be resolved before an initial offer. However, material assumptions should be identified, and the offer should reflect the information available at that stage. Further due diligence can then inform the final valuation, contractual protections and decision to complete the transaction.
How MS Kapital Supports Buy-Side Decisions
Evaluating an acquisition requires a clear understanding of the opportunity, the capital involved and the conditions needed to make the deal work.
MS Kapital supports buyers through acquisition opportunity assessment, business valuation and deal-related decision-making. By bringing financial performance, commercial considerations and transaction risks into focus, the aim is to help buyers approach negotiations with greater clarity and make informed decisions about where to commit capital.
Considering an acquisition in the UAE? Connect with MS Kapital to assess opportunities, evaluate business value and approach your next deal with a clear investment rationale.