Despite oil prices experiencing a sharp decline and the regional economy bracing for a challenging period, transactional activity in the healthcare sector in the UAE and across the GCC has been at an all-time high. One of the key players that we have had the privilege of working with has been NMC Health plc, a UAE grown family business turned multi-national healthcare giant listed on the London Stock Exchange.
NMC has entered into deals to complete five significant acquisitions in the last twelve months, including four acquisitions in the GCC and one acquisition of a fertility clinic in Spain. We sat down with Abhay Kumar, Assistant Vice President of Corporate Investments at NMC, to gain his insight into a client's perspective of the M&A landscape in the region.
Question: What are some of the key legal challenges faced when acquiring a healthcare asset in the region?
Mr Kumar's answer:
"You would know better as you have been our trusted advisors on almost all of them – one side or the other! The regulators in the region are constantly working towards creating a business-friendly environment. However, we faced a few challenges, which were a learning experience for us, especially when we found that some of the licensing framework may not be uniformly implemented across the different Emirates. Another challenge for us in has been some of the smaller transactions, where the doctors, who were also the owners, did not engage professional advisors. Good doctors may not be the best M&A executors. Therefore, the smaller deals have been relatively more challenging."
We fully agree with Mr Kumar's response. For example, the historic regulatory regime in the UAE has resulted in numerous healthcare establishments that are set-up as sole proprietorships legally owned by individual UAE nationals. In the eyes of a potential acquirer, such a structure could be (i) legally unattractive given that a sole establishment is exposed to unlimited liability and (ii) difficult to integrate into the existing corporate structure of the relevant purchaser. Consequently, a potential acquirer would typically expect a pre-completion reorganisation of the relevant asset as a condition to completing the transaction.
When advising clients on the acquisition of healthcare assets in the UAE, there are several key issues we commonly encounter in relation to the transaction structure. These issues tend to include:
- determining whether to acquire the target by way of an asset purchase or a share purchase; and
- the foreign ownership restrictions imposed by UAE Federal Law No 2 of 2015 (the Companies Law), pursuant to which a non-UAE national may only hold 49% of the share capital of a limited liability company in the UAE.
A purchaser will likely consider many factors when making its determination as to whether it will acquire the shares in a target or specific assets owned by the target. The key advantage of a share acquisition in this region, which would carry with it the potential liabilities attached to the shares, would be the relative ease of continuity of operations. By acquiring the shares in an existing healthcare target, the purchaser may circumvent what could otherwise be a cumbersome process of setting-up an entity in the UAE that is duly licensed by the relevant health authority and the process of transferring employees from one entity to another. This advantage may be less of an incentive for the purchaser if there may be significant liabilities attached to the shares or the target company. An asset/business purchase may be particularly attractive if the healthcare target is part of a diverse group including assets or business verticals that may not be of interest to the purchaser. Completing an asset/business transfer may be particularly challenging in the context of assigning contracts, transferring licences and employees and obtaining regulatory consents in relation to an asset/business transaction.
Increasingly, purchasers are looking at investing in the region through a special purpose vehicle incorporated in an offshore jurisdiction, such as the British Virgin Islands or the Cayman Islands. The decision as to which jurisdiction to incorporate in is often driven by, amongst other things, tax considerations and the relative ease of registering an entity in the relevant jurisdiction. We are also seeing an increase in clients opting to use holding companies or special purpose companies (where there is a structured financing element) in the Dubai International Financial Centre (DIFC). We have seen a lot of value from utilising the robust legal framework in the DIFC, including the reliable dispute resolution mechanism of the DIFC courts or the effectiveness of the DIFC-LCIA arbitration rules.
The purchaser of a healthcare asset in the UAE and the wider region must also be mindful of the prevailing licensing regime: a healthcare facility must have a licence issued by the Economic Department in the relevant Emirate in the UAE and a facility licence issued by the Health Authority in the relevant Emirate. For example, a hospital in Dubai that is owned by a limited liability company should hold a licence issued by the Government of Dubai Department of Economic Development and the Dubai Health Authority (DHA). The equivalent authorities in Abu Dhabi are the Department of Economic Development in Abu Dhabi and the Health Authority – Abu Dhabi (HAAD). Each licensing authority has its own set of rules and the completion of an acquisition in the UAE is contingent on obtaining the relevant approvals of the relevant authorities. It is very encouraging to see, from our experience, that the UAE licensing authorities have been very professional and responsive.
Question: Where do financial and legal advisors add the most value?
Mr Kumar's answer:
"We very much value both our financial and legal advisors and we all work closely together to achieve a successful outcome. We have found that our financial advisors are particularly helpful at the outset in identifying potential assets and getting a deal on the table. Our legal advisors enter the picture a bit later and assist in every step and challenge along the way to get the deal across the finish line."
Where a legal advisor like Clyde & Co can add particular value is not only in drafting and negotiating transactional documents, but also in identifying particular areas of risk and potential road blocks in completing an acquisition of a healthcare asset and ensuring that these risks are adequately addressed. Our deep understanding of the healthcare sector, and substantial expertise in M&A transactions, means that we are able to appreciate the particular business demands while assisting with the legalities of the transaction.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.