Regional instability is adding new layers of complexity to M&A transactions across the Middle East. While deal activity continues, buyers and sellers are reassessing how risk is allocated, documented and priced. This article looks to highlight the key pressure points affecting transactions in the current environment.
Valuation under pressure
Market volatility is making pricing more difficult. Disrupted operations, unpredictable revenues and tightening financing conditions mean parties will rely more heavily on tools such as earn-outs contingent on performance tied to an agreed business plan, deferred consideration, pricing adjustment mechanisms and enhanced leakage protections. These mechanisms help balance valuation risk where financial performance may fluctuate.
Where earn-outs feature in deals, it will be increasingly important to base the earn-out on realistic projected numbers agreed as part of a business plan. Sellers will wish to protect unknowns outside of their control through provisions similar to force majeure. These provisions can help to revisit an earn-out structure by adjusting targets or extending the earn-out period, to exclude periods impacted by conflict or other circumstances outside the parties’ control.
Warranties and indemnities scrutinised
Heightened uncertainty will drive buyers to seek broader warranty coverage, particularly around supply chains, sanctions compliance, operational resilience and regulatory exposure. Sellers are likely to respond with expanded disclosure exercises to narrow their liability envelope. Warranty and Indemnity insurance may become more prevalent, although underwriting is likely to be more cautious and may include conflict related exclusions, both of which may also impact pricing.
Targeted indemnities and post completion protections
Where specific risks are known, parties will negotiate bespoke indemnities. These will relate to regulatory issues, potential claims or disruption driven breaches. Longer survival periods and further discussions around financial caps may become more common.
Termination rights and conditionality
Clear exit rights are increasingly important. Material Adverse Change (MAC) clauses, regulatory approvals and financing conditions will be drafted with greater precision to account for fast moving geopolitical events. Objective, well defined triggers are critical to their effectiveness.
Flexible deal structuring
To keep transactions moving, parties may need to adopt more flexible structures, including phased acquisitions, joint ventures, minority stakes with option mechanics and escrow arrangements. These approaches allow risk to be shared and managed over time.
Enhanced due diligence
Conflict-related pressures may expand the scope of due diligence. Key areas include:
- contract resilience and termination rights
- sanctions exposure and cross-border compliance
- supply chain stability and key counterparty risk
- workforce mobility and retention risk
- financial stress testing under multiple scenarios
- insurance coverage for business interruption and political risk.