Looking at another nation in the Middle East, our next thought leader explains why mergers are moving the UAE’s M&A landscape forward and are set to boost FDI throughout 2017.
Dr. Habib Mohamed Abdullah, Managing Partner of Middle East Alliance Legal Consultancy (MELF), here talks to Lawyer Monthly about the prospects of further M&A operations in UAE, the obstacles between here and then, and the progress in legislation that is creating new opportunities in this innovating and business developing nation.
In the M&A landscape, what recent transactions have you and the firm been involved in?
MELF has been involved in multiple high value M&A transactions for major corporate entities in the UAE, and over the years has gained valuable experience in all aspects of M&A activities. MELF has the expertise to assist its clients in creating synergies by overcoming challenges unique to the UAE economic landscape.
How would you describe the current M&A landscape in the UAE? How is this to progress throughout 2017?
M&A activity has been affected by geopolitical tensions and the weakened oil prices. M&A activity in the UAE showed positive performance in the first half of 2016, and the outlook remains optimistic for the second half. Mergers are anticipated between National Bank of Abu Dhabi (NBAD) and First Gulf Bank (FGB), Mubadala Development Company and the International Petroleum Investment Company (Ipic), and Abu Dhabi has revealed plans to merge two oil production arms of the Abu Dhabi National Oil Company (ADNOC) and is working on merging its three science and technology centres. These mergers will also force others to look at mergers in 2017.
What are the overall obstacles to M&A progress today and what do you think can be improved to make UAE’s markets more appealing to FDI?
UAE is increasingly becoming an easier place to do business. However, several hurdles to M&A progress, both regulatory and cultural remain. There is foreign ownership restriction and foreigners may not own shares greater than a specified percentage in a company. There is also an unclear application of existing regulations and lack of depth in current regulations. The founding families of businesses tend to develop an emotional attachment to the business and are less willing to let their shares be acquired by others.
Similarly, how is the firm, as a thought leader, contributing towards the Abu Dhabi Economic Vision 2030, through services in the M&A sphere?
The Abu Dhabi Economic Vision 2030 represents a long-term roadmap for economic progress and for achieving tangible levels of economic diversification. M&A activity is essential for achieving the target of the Economic Vision 2030 as M&A activity enables businesses to gain more market share, to increase efficiency and to expand global reach. By facilitating M&A activity and highlighting inefficiencies in the M&A regime, MELF is contributing towards the Abu Dhabi Economic Vision 2030 of creating a diversified, sustainable and competitive economic base actively participating in the global economy.
What are currently the biggest obstacles to increased successful M&A deals in the UAE and how are you helping to turn that around?
There is little flexibility for market players collaborating with government authorities to prevent unfair takeovers where the market is not actually efficient. It would be fairer for target businesses to be valued on the basis of market price, rather than asset valuation to determine the merger ratio. However, considering the UAE economy is in a transitional period, the market often fails and makes it difficult for any proposed merger to be fairly assessed based on the fair values of the two companies.
What has been the most recent legislative development to affect the M&A sphere in the country? What impact has this had on your work?
The new Federal Commercial Companies Law of 2015 stipulates that any entity desirous of acquiring shares in a Public Joint Stock Company in the UAE, which offered its shares for public subscription, shall comply with the Securities and Commodities Authority’s (SCA) rules and procedures for acquisition, which require the shares to be assessed by a financial consultant and valued by a government appointed committee. This reflects a merger of finance and law and entails working in close collaboration with expert business appraisers and financial consultants to assist clients in resolving disputes and obtaining the sanction of government and judicial authorities for the highest valuation of their property rights.
