Due Diligence Checklist for M&A in UAE

Historical Financials: 3 years of audited financial statements (if available), management accounts for current year, monthly financial statements for past 12 months, prior year tax returns.

Quality of Earnings: Normalize EBITDA (remove one-time items), verify revenue recognition policies, assess sustainability of profit margins, identify aggressive accounting, adjust for related party transactions at non-arm's length.

Working Capital Analysis: Historical working capital requirements, normalized working capital level, assess adequacy for operations, identify potential working capital adjustment at closing.

Balance Sheet Review: Verify cash and bank balances, assess accounts receivable collectibility, validate inventory valuation and obsolescence, verify fixed assets and depreciation, assess liabilities completeness.

Revenue Analysis: Verify revenue by customer and product, assess customer concentration risk, analyze pricing trends, verify recurring vs. one-time revenue, test revenue recognition accuracy.

Cost Structure: Analyze major cost categories, assess variable vs. fixed costs, identify cost reduction opportunities, verify expense classification, review related party expenses.

Market Position: Market size and growth rates, company market share, competitive landscape, competitive advantages and moats, barriers to entry.

Customer Analysis: Top 10-20 customers (concentration risk), customer retention and churn rates, customer satisfaction metrics, contractual terms and relationships, revenue pipeline and backlog.

Products/Services: Product portfolio and pricing, product life cycles and obsolescence risk, product development pipeline, margins by product line, substitution threats.

Sales & Marketing: Sales channels and effectiveness, marketing spend and ROI, sales force structure and compensation, brand strength and recognition, digital presence and e-commerce.

Growth Drivers: Organic growth vs. M&A driven, growth initiatives and investment needs, geographic expansion opportunities, new product/service opportunities, partnership and distribution opportunities.

Operations Overview: Production/service delivery processes, capacity utilization and constraints, quality control systems, operational efficiency metrics, technology and equipment status.

Supply Chain: Key suppliers and terms, supplier concentration risk, supply chain resilience, inventory management systems, logistics and distribution.

Facilities: Ownership vs. leased facilities, condition and age of facilities, capacity adequacy, lease terms and renewal options, environmental compliance.

Technology & IP: IT systems and infrastructure, proprietary technology and IP, software licenses, cybersecurity posture, IT roadmap and investment needs.

Human Resources: Organizational structure, key person dependencies, employee demographics and turnover, compensation benchmarking, labor relations, cultural assessment.

Corporate Structure: Legal entity structure, ownership structure and shareholding, corporate governance documents, board composition and minutes, related party relationships.

Material Contracts: Customer contracts (top 20), supplier agreements, distribution agreements, franchise or license agreements, loan and financing agreements, lease agreements, employment contracts for key staff.

Litigation & Disputes: Pending or threatened litigation, regulatory proceedings, arbitrations or disputes, historical litigation, product liability claims, employment disputes.

Regulatory Compliance: Industry-specific licenses and permits, regulatory compliance status, environmental permits and compliance, health & safety compliance, data privacy compliance (UAE DPL, GDPR).

Intellectual Property: Trademarks, trade names, copyrights, patents and patent applications, domain names, trade secrets, IP ownership and registrations, IP licensing agreements.

VAT Compliance: VAT registration status, VAT return filing history, VAT audits or assessments, VAT refund claims status, cross-border VAT treatment.

Corporate Tax (from 2023): Corporate tax registration, tax group structure, taxable income calculations, transfer pricing policies, tax loss carryforwards, tax incentives or exemptions.

Other Taxes: Withholding tax compliance, customs duty compliance, municipality taxes, excise tax (if applicable).

Tax Risks: Prior tax assessments or disputes, pending tax audits, aggressive tax positions, related party pricing, transfer pricing documentation.

Tax Structure Optimization: Optimal post-acquisition structure, available tax elections, integration tax considerations, exit strategy tax implications.

Valuation: Validate purchase price vs. comparables, assess synergy assumptions, verify EBITDA multiples, review DCF assumptions, consider working capital adjustments.

Transaction Structure: Asset vs. share purchase implications, tax efficiency, liability assumption, carve-out complexity, regulatory approvals needed.

Warranties & Indemnities: Key business representations, financial statement warranties, tax indemnities, environmental indemnities, IP ownership warranties.

Post-Closing Matters: Integration planning, key employee retention, customer communication, system integration, rebranding considerations.

Financial Red Flags: Declining revenue trends, eroding margins, significant related party transactions, aggressive revenue recognition, large one-time charges, significant customer concentration.

Operational Red Flags: High employee turnover, key person dependencies, aging technology, deferred maintenance, litigation overhang, regulatory compliance issues.

Commercial Red Flags: Losing major customers, increasing competition, price pressure, market share decline, obsolete products.

Cultural Red Flags: Founder dependency, poor management depth, weak financial controls, resistance to transparency.