Deal value is up 57% to $3.15bn and the number of deals has increased by 14% to 89, based on corporate transactions on which Clyde & Co worked in the Middle East.

According to this latest annual study, sentiment is cautious but positive and appetite for the right deals at the right price is strong.

There is also growing evidence that the market now appears to be becoming more favourable for buyers with more extensive warranties and walk away rights for buyers, it stated.

Caution remains, however, particularly in relation to pricing structures with completion accounts gaining ground over locked box. Strategic, value-adding moves and defensive plays are both notable features of the market.

Market ‘turns a corner’ 

Philip O’Riordan, partner and head of corporate – MEA in Dubai, says: “It is clear that in the current climate, balancing the opportunity value against the potential risk is increasingly important for buyers.

“However, our data points towards a market that has maybe turned a corner with pockets of opportunities for deal transactions across the region in a number of key sectors such as healthcare, education and increasingly tech.”

He added that the recent spate of mega-deals also highlights the growing maturity of the Middle East M&A market, as successful regional businesses have increasingly come to the attention of major international players.

Data also shows a rise in M&A as JVs declined, with M&A representing 70% of total deals (vs 49% in 2017).

Growing confidence in the legal environment and moves to open up foreign ownership may explain why the proportion of M&A deals versus JVs is up.

JVs were also more likely to be true partnerships involving balanced business combinations rather than “structures of convenience”.

While the long-term “exclusive commitment” JV model is attractive for Middle East market players, it has tended to be less popular with international brand owners used to greater flexibility.

Healthcare sector leads the way 

O’Riordan said: “Overall, building on our 2017 findings, the DIFC continues to be the most popular dispute resolution forum for M&A and JV deal makers, with DIFC/LCIA arbitrations gaining ground to become more established and reliable for resolving disputes in the region (up 10% vs 2017).

“In terms of sectors, Healthcare led the way with the highest levels of deal activity as population growth and rapid technological change spur innovation and investment, followed by manufacturing and education. Meanwhile oil & gas market turbulence in recent years has created opportunities for strategic acquisitions, consolidation and collaboration in energy.

“Tech is also one of the sectors to watch and is expected to be a major driver of growth, as it forms a significant plank of several Smart City initiatives and national development plans across the region.

Naji Hawayek, partner and healthcare lead – Middle East, said: “As the population increases and more facilities are required, the healthcare sector in the region is forecast to expand by nearly 40% by 2022 according to recent reports.

“There is real appetite from investors, including international private equity houses, to get a slice of the action. Looking ahead, the use of AI and robotics is on the horizon, creating potential to transform the healthcare sector even further”.

The key changes include a six-month limit for bringing employment claims.

This restriction is somewhat offset by greater protection for employees against discrimination (including harassment) and victimisation.

There are also “enhanced family-friendly benefits and increased clarity for employers and employees in relation to the payment of salaries and other entitlements”, according to law firm Clyde & Co, which advised the DIFC on the law.

No specific details were provided about what those benefits or clarifications are.

Revolving door of change

The employment law update is the latest in a raft of moves the DIFC is making, as it works to consolidation its position as an international finance centre.

As reported by International Adviser, an insolvency law has been rolled out to meet international best practice guidelines.

It came into force on 13 June 2019.

In a further change, the DIFC has proposed reforming its family office regulations and it is also pushing ahead with its plans to introduce an end of service gratuity scheme from 1 January 2020.

International best practice

Jacques Visser, chief legal officer at DIFC Authority, said: “The DIFC prides itself in being the leading financial hub for the Middle East, Africa and south Asia region. We constantly review and develop our legislation and the new DIFC Employment Law is part of our drive to maintain our position as a market leader.

“We decided to instruct Clyde & Co, following extensive feedback from our public consultation, in order to ensure that the new DIFC Employment Law takes into account both employer and employee concerns and properly reflects international best practice.”

Rebecca Ford, employment partner at Clyde & Co in Dubai, added: ” The new law will certainly enhance the DIFC’s reputation as an attractive environment in which to work and do business in the UAE and the wider region.”

Shanahan joins from Baker McKenzie where he was a financial services and regulation partner, and prior to that, working for three years at the UK’s Financial Services Authority (now FCA) and seven years at the Dubai Financial Services Authority (DFSA).

Mark Beswetherick, partner and head of dispute resolution for the Middle East at Clyde & Co, said: “As the Middle East market continues to grow and the legislative framework keeps evolving, clients have an ever-increasing need for regulatory advice to manage new risk and compliance issues, especially across the financial services and insurance sectors.

He added that Shanahan’s “unique regulatory experience” and reputation in the region will be key to expanding its regulatory offering.

Shanahan specialises in advisory and contentious financial services regulation, advising banks, securities firms, other financial institutions and public sector bodies on all aspects of financial services regulation, including market abuse, fintech, anti-money laundering and financial crime.

He also advises clients on managing regulatory investigations and enforcement actions, internal investigations, crisis management, commercial disputes, corruption, bribery, and data protection matters.

Financial services has wide span within the firm 

Financial Services is a wider sector group for the firm, which spans across all its specialisms and practices (including but not limited to regulatory work, a spokesman explained.

Shanahan and another existing partner Peter Hodgins both cover clients within the financial services sector, advising banks, intermediaries, financial services regulators and other financial institutions.

The regulatory and investigations practice for the region operates across all sectors (including but not limited to financial services).

Hodgins is also a member of the regulatory and investigations practice and focuses on insurance, corporate finance and Islamic finance.

The Financial Services sector group is led by Adil Hussain in the Middle East, and both Shanahan and Hodgins provide regulatory advice to that group.

Shanahan said: “Clyde & Co has one of the most established platforms in the Middle East and across the world. It will give me the opportunity to leverage my expertise in helping our clients navigate their growing regulatory requirements and in complementing the firm’s regulatory practice.”

Global network 

Clyde & Co’s global regulatory & investigations group comprises 20 partners across its global network including London, Dubai, Singapore, Hong Kong, Canada and the US.

It works on regulatory investigations involving sanctions, money laundering, bribery & corruption, white collar crime, data protection, market abuse and financial services regulatory breaches.

Clyde & Co has over 50 partners and 400 staff in the Middle East, based full time in Abu Dhabi and Dubai in the UAE, Doha in Qatar, Muscat in Oman and Riyadh in Saudi Arabia.

Analysis of the FCA’s enforcement database shows that fines handed down by the regulator this year (to 7 December 2018) fell to £27.6m from £229.5m ($292m, €256.3m) in 2017.

Of this, £1.3m was levied against individuals, with companies fined £26.3m.

This, however, doesn’t paint the full picture, according to Charles Kuhn, partner at Clyde & Co. “Last year there were a number of record-breaking fines against companies that somewhat skewed the figures.”

He highlighted Deutsche Bank’s £163m penalty in January 2017, which was an FCA record for money-laundering failures. Similarly, Rio Tinto was given another record-breaking fine of £27m in October 2017 for listing-rules breaches.

Individuals taking bigger hits

The research by Clyde & Co, which won best international law firm at International Adviser’s Global Financial Services Awards, shows the average fine for an individual this year has almost trebled to £186,000, up from £63,000 in 2017.

Kuhn added: “City executives should certainly not be breathing a sigh of relief. The FCA has made a conscious effort to put the onus of responsibility on individuals. The introduction of the Senior Managers Regime (SMR) is testament to this and the statistics demonstrate that this approach might be starting to bear fruit.”

SMR puts the onus on managers to take responsibility for their own actions and those of their staff.

Senior managers and key non-executive directors risk fines or bans from the industry unless they can show they took all reasonable steps to prevent wrongdoing within their teams. There is also a parallel criminal offence of recklessly mismanaging a financial institution that fails. The rules came into effect in March 2016.

FCA denies changing tack

A spokesperson for the FCA, however, refuted the suggestion that it is more heavily targeting individuals: “There has been no change in our approach to misconduct or financial penalties.

“We remain committed to investigating and holding firms and individuals to account for misconduct and ensuring wrongdoers pay for the costs of remediation.

“In fact, the FCA is doing more enforcement not less – over the last year alone there has been a significant increase of 75% in the number of investigations we have commenced.”

Foot firmly on the gas

This point is also emphasised by the Clyde & Co research, which found that the number of cases the FCA had opened at 1 April 2018 was a record high of 504, up from 410 in the previous 12-month period.

Last year, the FCA’s head of enforcement, Mark Steward, announced that the regulator would be opening more cases sooner, but should not be afraid of dropping them if there is no evidence of wrongdoing.

Kuhn said: “The FCA has its foot firmly on the gas. However, it has come under some criticism over taking too long to prosecute and, with a record number of cases in the pipeline, some are questioning the regulator’s capacity to handle so many investigations.

“Eventually, these cases will be concluded and we could see a continual uptick in the level of fines levied against individuals. Especially, as a number of the cases in the pipeline involve examination of the conduct of senior managers, which will of course test whether the SMCR might result in heavier punishments for individuals.”

Total value of fines levied by the Financial Conduct Authority by calendar year.