Financial due diligence in the UAE

Financial due diligence tests whether the business a buyer is paying for matches the numbers presented by the seller. In the UAE, where many private companies are owner-managed and reporting practices vary, it is often the step that changes the price or the structure of a deal. JRC carried out buy-side financial due diligence on a UAE clinic group and on a UAE asset integrity services provider in 2024; this guide sets out what the work covers.

 

 

Quality of earnings

 

The starting point is EBITDA as reported, adjusted for one-off items, owner-related costs, related-party transactions at non-market prices and accounting choices. The result, normalised EBITDA, is the figure a valuation multiple should be applied to. The review also breaks revenue down by customer, product and location, to show how concentrated and how recurring the earnings are.

 

 

Net debt and debt-like items

 

The price of a private company is usually agreed on a cash-free, debt-free basis. Due diligence identifies everything that should be deducted from it: bank debt, shareholder loans, leases, end-of-service benefits owed to employees, unpaid taxes, deferred income and overdue payables. In the UAE, end-of-service gratuity is often under-provided and can be material.

 

 

Working capital

 

A normal level of working capital is agreed as part of the price mechanism. The work analyses receivables, inventory and payables month by month, so that the buyer does not pay for a business whose cash has been drawn down just before completion. The ageing of receivables and the recoverability of old balances get particular attention.

 

 

Tax

 

Since the introduction of UAE corporate tax, buyers review registration, filings and the treatment of related-party transactions alongside VAT compliance. Any exposure found is covered by a price adjustment, a specific indemnity or an escrow.

 

 

The business plan

 

A buyer's model is only as good as the forecast behind it. Due diligence compares the plan with historical performance, tests the main assumptions and shows where growth depends on factors outside the company's control. It is also the base for the valuation of the business.

 

 

From findings to the share purchase agreement

 

Each finding has a home in the transaction: the price, the net debt and working capital adjustments, the warranties and indemnities of the share purchase agreement, or a condition to closing. A useful report says which.

 

 

How JRC can help

 

JRC's M&A advisory team in Dubai carries out financial due diligence for buyers, models the transaction and structures the price and its financing. Contact us to discuss an acquisition.