Geopolitical tensions, economic uncertainty and shifting interest-rate expectations are prompting a recalibration of mergers and acquisitions (M&A) activity across the UAE, with buyers becoming more selective and sellers increasingly willing to adopt creative deal structures to keep transactions alive.
Deal advisers say the region’s deal pipeline remains active despite a more cautious investment environment, reflecting confidence in the UAE’s long-term growth story even as negotiations become more complex.
According to Fraser Dawson, Partner in Corporate Finance at Addleshaw Goddard, the current market differs sharply from the post-pandemic boom period that saw a surge in dealmaking.
“There have been several changes, primarily that either sellers have decided not to go to market at the current time, negotiations for deals which were already in progress have stopped or been put on hold whilst buyers assess how the regional situation is likely to play out, or sellers have accepted more buyer-friendly terms than we saw in the post-pandemic boom period in order to get deals over the line,” said Fraser Dawson.
Yet he noted that transactions continue to be completed. “We are still working on a significant number of transactions in the UAE, which demonstrates the resilience, strength of and commitment to the region.”
Deal advisers say uncertainty has not weakened investor interest so much as changed the way opportunities are evaluated. Zuhaib Khan, Senior Managing Director, Transaction Services at FTI Consulting Middle East, said buyers are scrutinising businesses more deeply before committing capital.
“The biggest shift has not necessarily been a decline in appetite for deals, but a sharper focus on testing the assumptions that underpin growth and value,” said Khan. Buyers are spending more time assessing “the quality and sustainability of earnings, cash generation and potential downside risks”, while due diligence processes have become more thorough and deal structures increasingly tailored to address uncertainty.
Valuation negotiations have also become more challenging. While comprehensive data on the impact of current geopolitical tensions is still emerging, advisers expect the gap between buyer and seller expectations to widen in sectors most exposed to regional disruptions.
“We haven’t yet got enough data to be definitive about the effect of the current uncertainty on valuations,” said Fraser Dawson, adding that tourism, hospitality and entertainment are among the sectors that could face the biggest valuation pressures if earnings are affected.
Khan said valuation debates are increasingly focused on future earnings rather than historic performance. “Sellers may continue to benchmark expectations against periods of stronger market sentiment, while buyers are placing greater emphasis on forecasts and execution risk.”
To bridge those differences, both buyers and sellers are relying more heavily on mechanisms such as earn-outs, completion accounts and enhanced disclosures.
“An earn-out is where part of the purchase price is deferred and calculated based upon the future financial performance of the business,” said Fraser Dawson, noting that such structures allow both sides to share the risk of future underperformance.
Khan described earn-outs, completion accounts and escrow arrangements as “valuable tools for aligning expectations and allocating risk between buyers and sellers”. He added that “the debate is no longer about today’s performance, but the sustainability of future performance”.
Investors are also demanding more extensive due diligence before deploying capital. Dawson said buyers should seek “as much up-to-date information as possible” on how businesses have been affected by current geopolitical and economic conditions, together with plans to mitigate those risks.
Meanwhile, Khan said investors are paying closer attention to “cash conversion, working capital requirements, customer concentration and the reliability of management information”, particularly in family-owned and founder-led businesses where governance and succession planning are becoming key considerations.
Despite the uncertainty, both advisers believe opportunities remain abundant for investors prepared to take a longer-term view.
“There is no doubt that the current situation will lead to opportunities for bullish investors,” said Dawson. In some cases, simply finding “an owner who is willing to sell in the current climate” can give buyers access to quality businesses on more favourable terms. He highlighted sectors such as defence, AI, data centres, food security and healthcare as areas showing resilience.
Khan agreed, saying periods of uncertainty can create opportunities to acquire capabilities, market share and strategic growth platforms at more disciplined valuations. “In uncertain markets, investors are often willing to pay for quality, particularly where a business can demonstrate consistent execution, strong governance and sustainable earnings.”
Source: Khaleej Times