What is Due Diligence in M&A?

Due diligence is the independent investigation and verification of a target company's business, financials, legal status, and operations before completing a transaction. It protects buyers from hidden liabilities, overstated earnings, or undisclosed risks — and gives sellers confidence that their representations are supported.

The Three Pillars of UAE M&A Due Diligence

1. Financial Due Diligence

Financial due diligence answers the most fundamental question: are the financials real? It examines quality of earnings (QoE) and covers:

• Revenue recognition practices and IFRS compliance
• Normalised EBITDA — stripping out one-off items and non-arm's-length transactions
• Working capital trends and seasonal variations
• Debt obligations, bank covenants, lease liabilities, and contingent liabilities

2. Tax Due Diligence

With UAE Corporate Tax Law now in force, tax due diligence is more critical than ever:

• Historic VAT compliance, including exempt and zero-rated supplies
• UAE Corporate Tax registration and filing compliance (effective June 2023)
• Transfer pricing policies for related-party transactions
• Free zone tax status — qualifying vs non-qualifying income under QFZP regime
• Potential tax exposures and required provisions

3. Commercial & Operational Due Diligence

• Customer concentration: what percentage of revenue comes from the top 5 clients?
• Competitive positioning: is the company's market share defensible?
• Management dependency: what happens if key people leave?
• Contract review: are there change-of-control clauses in key agreements?

Common Red Flags in UAE M&A Due Diligence

• Revenues recorded in excess of signed contracts
• Related-party transactions that are not arm's-length
• Inconsistencies between bank statements and reported accounts
• Undisclosed legal proceedings or regulatory sanctions
• Missing or inconsistent VAT returns
• EOSB provisions not properly accrued

How Long Does Due Diligence Take?

For a small to mid-size UAE business, financial due diligence typically takes 3 to 6 weeks. More complex transactions may take longer. Speed should never compromise thoroughness — shortcuts in due diligence are among the most expensive mistakes in M&A.

KPIs Advisory Group: Your M&A Partner in Dubai

Our M&A advisory team brings together financial analysts, licensed UAE Tax Agents, and operational experts. We work on both buy-side and sell-side mandates with full bilingual (Arabic/English) capabilities.

Contact: info@kpisadvisory.com | +971 52 89 31117