Most sale processes that fail in this market do not fail at the buyer stage. They fail because nobody tested the business hard enough before it went out, so the questions that should have been answered in week one get asked instead by a buyer's accountant in week nine, when there is no time left to fix anything and no leverage left to negotiate with. We underwrite before we take a mandate for exactly that reason.
What underwriting a mandate means here
We do not take a business to market and then find out what it is. We build the buyer's case against it first, using the same sources any competent acquirer will use, and we do that before either side has signed anything binding. If a file does not survive our own review, it will not survive a buyer who is about to wire a seven figure sum, and the honest thing is to say so at the start rather than to collect a retainer and discover it later.
This is not diligence in the formal sense. Formal diligence happens after a buyer signs a letter of intent, at the buyer's cost, with the buyer's advisers. What we do is narrower and earlier, and it answers one question: if we put this business in front of a serious acquirer, what will that acquirer find, and can the owner live with what they find.
The earnings triangle
Every valuation in this market rests on seller discretionary earnings, and every SDE figure rests on whether the numbers are real. We test that against three sources that were created for different purposes and therefore cannot easily be made to agree unless they are true: VAT returns, bank statements, and payroll records.
VAT returns are filed with a tax authority and carry consequences if they are wrong. Bank statements record what actually moved. Payroll records show what the business really pays its people. Revenue claimed in a management account that does not appear in the VAT filings, receipts that never landed in a bank account, or a staff cost line that does not match what payroll shows, are the three most common places a valuation comes apart.
We are not looking for fraud, and we rarely find any. Most of the gaps are ordinary. An owner nets off supplier rebates. A related party occupies space at below market rent. Cash sales are recorded in one system and not the other. A family member sits on payroll without working in the business. Each of those is explainable or fixable. None of them is fixable in the week a buyer asks about it. All of them cost money if they surface late, because a buyer who finds one unexplained gap assumes there are others and prices for that assumption rather than for the business.
The cost the file usually forgets
End of service gratuity is the line most owners leave out of their own numbers and the line most buyers insist on seeing. An employer accrues an end of service benefit for each employee across the length of their service, and that liability sits against the business whether or not it has ever been funded, provisioned, or written down anywhere.
We compute it before the file goes anywhere. A business with long serving staff can carry an accrued gratuity liability large enough to change what an owner actually walks away with, and an owner who learns that figure for the first time across a table from a buyer has lost negotiating room they never needed to lose. An owner who sees it early can choose a position: fund it, disclose it and price it into the headline number, or treat it as a completion adjustment they have already modelled. Any of those is a position. Being surprised by it is not.
Who can actually sign
Before any work starts we read the memorandum of association and establish who owns what. This sounds procedural, and it is the single most common reason a UAE SME transaction dies late.
Three things get checked. First, that every shareholder is identified and every one of them is prepared to sign the mandate, because a shareholder who never agreed to a sale can stop it at completion regardless of what the majority wants. Second, that the constitutional documents do not contain a right of first refusal, a drag along, or a tag along provision that changes who has to be offered the shares, and on what terms, before an outside buyer can be considered at all. Third, that the licence and any activity specific approvals can move to a new owner, and what that transfer actually requires in practice.
Licence and approval questions are the ones that most often push a completion date out, because they involve a third party whose timetable belongs to them and not to the deal. Knowing the answer in week one is a very different thing from discovering it in week ten. Where an answer turns on law rather than on practice, it goes to the parties' own counsel. We flag it, we do not improvise it.
How much of the business is the owner
A buyer is purchasing a stream of earnings that has to keep running once the person who built it stops showing up. So we test how much of the business is genuinely institutional and how much of it lives in one person's phone.
- Customer relationships. Who do the top ten customers actually call, and would they still call if the name on the door changed.
- Management depth. Is there a second tier, or a general manager the team already follows without the owner in the room.
- Concentration. What share of revenue sits with the largest one or two customers, and what happens to the numbers if one of them leaves in the first year.
- Contracts and terms. Are supplier terms in the company's name or the owner's, and is the lease assignable, for how long, and on what conditions.
The answers move a business inside the 2.0 to 3.5x SDE range that owner-operated businesses in the AED 2 to 10 million band trade in. They also set the shape of the deal. A business that leans heavily on its owner attracts more deferred consideration and a longer handover, because the buyer is pricing the risk that the earnings leave with the seller. A business that runs without its owner gets more cash at completion and fewer conditions attached to it.
The yield test, run before the owner hears a number
The last step is arithmetic. We run the buyer cash yield test, which asks what annual cash return the business hands a buyer who pays the proposed price out of their own capital. Acquisition lending in this size band is limited, so buyers here are usually funding with their own money and looking for a 25 to 35 percent cash yield to justify owning a business that depends on staff, a lease, and a licence rather than a diversified portfolio.
If the price an owner has in mind fails that test, we know exactly how a buyer will respond to it, and we say so before it is put in front of anyone. A number that cannot survive the yield test is not a negotiating position. It is a process that ends in a withdrawn offer, after the market has already learned the business is for sale.
When we decline
We decline files, and we would rather do it in the first week than the fourth month. The usual reasons are shareholders who are not aligned on selling, earnings that cannot be evidenced from independent sources, a price expectation that no arithmetic reaches, or an owner who wants to test the market without having decided to sell. In each of those cases, taking the mandate would mean charging for a process we do not believe closes.
Declining is not a verdict on the business. Most of the businesses we do not take this quarter are businesses we would take in twelve months, once the gaps are closed. That is usually the more useful conversation anyway, because the work that makes a business sellable is the same work that makes it worth more, and it pays whether or not a sale follows.
What the owner takes away
An owner who goes through this ends up with a defensible view of their own business before anyone outside sees it: what it earns on figures a buyer can verify independently, what liabilities sit behind those figures, where a buyer will concentrate attention, and roughly where the price will land. That is worth holding whether the answer this year is sell, wait, or fix four things and revisit.
If you want to see where your business sits, our valuation service returns a written range in 48 to 72 hours once your figures are with us, built on the same sources a buyer will use. If you want the full path from a first conversation through to a signed SPA, including how confidentiality is held throughout, read how a mandate runs. Acquirers who want to see how we present a prepared business can start at UAE Dealroom.
Written by Joseph Coello, Founder and Principal, Coello Advisory.