WHY DO UAE BUSINESSES OPT FOR STRATEGIC BUSINESS EXITS?
There are many reasons a business will decide to work on or towards an exit strategy and below we explore the main reasons including:
- MARKET CHANGES: In the ever-changing UAE market, businesses may face declining demand or different trends. Exiting certain sectors and or areas allows for resource reallocation or redirection toward different areas that may be more beneficial to the business.
- STRATEGIC REVISIONS: Changes in a company’s vision could lead to exiting specific business areas or types of operations, enabling a focus on different strengths or new ventures.
- SEIZING OPPORTUNITIES: In some cases, attractive offers, like mergers, acquisitions, or buyouts, often emerge, providing opportunities for significant profit or strategic expansion. Businesses might explore these options as part of their exit strategy if interest is coming from third parties. As this can allow businesses to exit but make a profit in doing so.
WHAT ARE THE KEY TYPES OF EXIT STRATEGIES FOR UAE BUSINESSES?
The most common exit strategies for a UAE business can we summarized to the below three key types including:
- SELLING: Transferring ownership to another entity, typically for a lump sum or certain type of payment plan is a very common type of exit strategy. Acquisitions by competitors, investors, or firms seeking market expansion are popular tactics for those looking to expand their current businesses and looking to enter new areas via an acquisition rather than just starting from scratch.
- MERGERS AND ACQUISITIONS (M&A): Merger and Acquisition (M&A) involves uniting businesses for mutual gain, through acquisitions, mergers, or joint ventures. This strategy can encourage a wider market reach, or service diversification as there is experience / existing operations from both sides.
- LIQUIDATION: In instances where the business faces unsuccessfulness or lacks profitability and success, company liquidation becomes the only viable option to consider. The liquidation process involves selling assets, settling debts, and closing all operations, ultimately leading to the unwinding and de-registration of the UAE company. Failure to complete the unwinding process may result in fines and liabilities for both the company’s General Manager and the shareholders. Ensuring the proper documentation and closure formalities is of paramount importance.
WHAT ARE THE STEPS TO PREPARE FOR EXITING A UAE COMPANY?
Below we have listed the steps towards assisting with the preparation of exiting a UAE Company:
- ASSESS BUSINESS VALUE:
Conduct a comprehensive valuation to accurately determine the company’s worth. This ensures fair negotiations during the exit process.
- FINANCIAL PREPARATION:
Organize all financial records, resolve outstanding debts, and ensure complete financial documentation for a smooth transition during the exit.
- OPERATIONAL OPTIMIZATION:
Maximize efficiency and profitability before exiting to make the business more attractive to potential buyers or partners.
- LEGAL AND REGULATORY CONSIDERATIONS:
Adhere to UAE’s legal and regulatory requirements for a seamless exit process.
- Company Laws: Ensure compliance with UAE’s company laws regarding dissolution procedures, shareholder agreements, and employee settlements.
- Contract Handling: Properly handle contracts, leases, and agreements to prevent future liabilities or disputes.
- Employee Rights: Respect labour laws concerning employee termination, settlements, and benefits to ensure a trouble-free exit and avoid labour law implications from existing employees.
NAVIGATING FINANCIAL AND TAX CONSIDERATIONS WHEN EXITING A UAE COMPANY
Financial and tax considerations should be at the top of your checklist when considering an appropriate exit strategy for your UAE business:
- TAX CONSIDERATIONS: Understand the tax implications associated with the chosen exit strategy. Seeking expert advice can minimize tax burdens within legal bounds.
- ASSET VALUATION: Accurate asset valuation significantly impacts tax liabilities. Consulting experts is essential to navigate this aspect effectively, considering both tax liabilities and perspectives related to acquisition or merger.
- EXIT COSTS: Factor in all costs related to the exit, including legal fees, severance packages, and tax implications, while planning financially for a successful exit.
- ASSESS BUSINESS VALUE: A comprehensive valuation helps in accurately understanding what the company is worth, allowing accurate negotiations during the exit process to ensure that a fair transaction is made.
- FINANCIAL PREPARATION: Organise all financial records, resolve any debts the business may have, and ensure full financial documentation to facilitate a smooth transition during the exit.
CASE STUDIES IN SUCCESSFUL UAE BUSINESS EXITS
Explore local success stories where UAE companies achieved strategic exits through acquisitions:
- Souq.com In 2017, Amazon’s acquisition of Souq.com exemplified a successful business exit strategy. This move not only showcased the effectiveness of strategic acquisitions in the local UAE market but also led to Souq.com’s expansion as it rebranded to Amazon.ae, enhancing its services and market reach.
- Namshi Emaar Malls’ acquisition of Namshi demonstrated another success of an exit strategy by acquisition. Initially acquiring 51 percent of Namshi in 2017, it then purchased the remaining 49 percent in 2019 aiding Namshi’s continued growth and expansion.
TAKEAWAY FOR A SUCCESSFUL EXIT STRATEGY
Strategic Planning – A well-structured exit plan is essential for success as is legal Compliance and adhering to UAE’s legal framework is critical to avoid complications and or any penalties or fines. In addition to this having transparent financial records and comprehensive evaluations are also a critical part of completing a successful exit.
Learning from Success: Drawing insights from successful case studies is invaluable for businesses planning an exit.
In summary, meticulous planning and understanding of various facets are essential for businesses in the UAE contemplating an exit strategy. Familiarity with exit options, legal implications, financial readiness, and insights from successful cases contribute significantly to a smooth and successful exit.
Are you ready to ensure your UAE business exits seamlessly? Contact us at [email protected] or call for a free consultation: UAE +971 4 878 6240 | Saudi Arabia +966 54 511 2494.
