Navigating immigration considerations in the Middle East: Mergers, acquisitions, and other corporate changes

Summary

In today’s interconnected world, corporate changes involving mergers and acquisitions, consolidations, spinoffs, and other forms of restructuring (collectively, M&A) have become vital strategic tools for businesses seeking growth and expansion, or even needing to right-size their operations. As companies engage in cross-border M&A activity, it is crucial to understand and navigate the complex landscape of global immigration considerations.

According to data from Statista, North America and Europe remain the leading regions in terms of M&A activity, with China overtaking the UK as the second largest market.

The Middle East is also experiencing dynamic activity within the M&A space with a total of 318 merger and acquisition deals amounting to USD 43.8bn during H1 of 2023¹. Since the COVID-19 pandemic, there has been increased activity and consolidation in sectors such as consulting, finance, technology, fintech, healthcare, and energy. Indeed, cross-border deals have been a key tool for supporting the region’s economic growth. However, given the current geopolitical landscape and the nature of M&A work, this can be a complex area to navigate.

There are a number of reasons why the Middle East has become an increasingly attractive region for M&A activity:

1. the region’s sustained economic growth can make it attractive for foreign investors;
2. its location—the Middle East is strategically located between Asia, Europe, and Africa making it a natural hub for global trade and commerce, particularly for companies that are looking to expand their presence in other regions;
3. strong infrastructure—with many Middle East countries investing heavily in their infrastructure, there are ongoing opportunities in construction, transportation and logistics; and
4. technology, innovation, and energy—the region remains a key player in the energy market resulting in ongoing M&A activity within the sector as energy companies continue to diversify their portfolios and has been increasing investment in technology and innovation. The region also benefits from a young and highly educated workforce, resulting in a highly skilled labor pool in the region.

In this article, the Vialto Middle East M&A team explores the key immigration and mobility considerations that employers should bear in mind during such transactions in the region.

The current global economic situation and M&A activity

Globally, there has been a surge in M&A activity in recent years, particularly post COVID-19 pandemic with companies responding to economic challenges by reevaluating their structures and exploring new territories in order to access new markets and diversify their operations geographically, or even to consolidate and reorganize their businesses. This can enable companies to tap into new talent pools to achieve a competitive advantage, and achieve economies of scale, or potentially increase profits. By merging with or acquiring companies in other countries, organizations can quickly establish local operations and leverage established networks and expertise.

M&A activity can have a wide reaching impact on global workforces and foreign nationals who are on sponsored work permits or those who have taken steps to gain permanent residency. This can also result in additional costs for employers, including additional reporting and filing costs. Read on to learn more about key immigration considerations and the main immigration priorities and risks for companies to consider when embarking on a M&A journey.

Key M&A immigration considerations for employers

When engaging in M&A activity, employers must carefully consider immigration matters to ensure a smooth transition for their workforce. Here are some essential immigration considerations for companies when taking steps to begin M&A activity:

1. Assessing workforce mobility: Employers should conduct a comprehensive analysis of the workforce of both the acquiring and target companies. Understanding the immigration status of the respective employees and their ability to work in different jurisdictions is crucial. This assessment helps identify potential visa, work permit, residency, and compliance issues that may arise as a result of the M&A process.
2. Managing employee transfers: During M&A transactions, companies often relocate employees across borders, or to new locations within the same country. It is important to understand the immigration requirements of the destination as well as processing timelines to ensure compliance with local laws and regulations. Proactively addressing visa, work permit, and residency applications, as well as taking steps to avoid potential work authorization gaps, is essential to maintain business continuity.
3. Harmonizing immigration and global mobility policies: As merging companies often have different immigration policies and practices, implementing action to harmonize these policies and aligning them with the new organizational structure is vital. Companies should establish clear guidelines for managing work permits, visas, residency, and immigration compliance, designed to ensure consistency and clarity for employees throughout the transition. This may also entail assessing different immigration data management applications to identify the potential need to integrate various data sources.
4. Addressing compliance and due diligence: Compliance with immigration laws and regulations is critical to avoid potential legal issues, reputational damage, and status violations by a company’s employees and their family members. Conducting thorough due diligence of the target company’s immigration practices is crucial to identify any compliance gaps or potential liabilities, which allows employers to address any deficiencies and mitigate risks effectively.
5. Retaining/acquiring key talent: As mentioned above, one of the primary reasons for M&A activity is talent acquisition and retention. Retaining key employees during and after the transition is essential for business continuity and to potentially ensure long-term success of a company. Employers should consider immigration-related incentives or benefits to retain critical personnel, such as sponsoring work permits, facilitating visa transfers, or providing relocation assistance.
6. Complying with statutory labour protections: Some countries impose duties on a surviving or acquiring company to satisfy employment obligations and protect the rights of displaced employees. An assessment of local laws affecting displaced workers is essential before the M&A transaction closes.
7. Government approvals: It is important to determine whether the M&A deal may trigger any government approvals or notifications related to immigration matters, such as changes in ownership control that require the transfer of immigration related licences or registrations. In certain jurisdictions (e.g., the UAE and Qatar), where there has been a change to the entity name, an application to the authorities must be made to amend the employee’s residence permit. Additionally, in case the M&A deal triggers the establishment of a new entity and the dissolution of the current one, a sponsorship transfer of all the employees will be required.
8. Employee communication: Communication with employees about the M&A deal and any potential changes to their immigration status or work arrangements is important for proper planning. Providing clear and transparent information regarding the impact of the M&A deal on the employee’s immigration processes, work permits, and any necessary steps they need to take should be paramount for an employer’s communication with its affected employees.
9. Integration of immigration systems: Taking steps that are designed to provide an integration of immigration systems, databases, and processes to streamline and centralize immigration-related functions in an effort to improve efficiency, and facilitate consistent management of immigration matters across the merged entities is incredibly important to allow for a smooth closing of the M&A deal.

Regional considerations—M&A activity in the Middle East

Whilst there are general considerations that can be applied to workforce planning during M&A transactions, the Middle East does come with specific opportunities, considerations, and even challenges. These may include:

Regulatory compliance

Immigration rules and regulations often undergo frequent changes in different jurisdictions—and this has been particularly true post-COVID-19 pandemic, with immigration rules playing catch up with new ways of working and travelling, and with technological advancements never contemplated when the rules were originally enacted. M&A transactions that involve international operations must take into account potential regulatory changes that could impact the immigration status of employees. It is important to stay informed about legislative developments, government policies, and regulatory updates to take action to ensure ongoing compliance and effective management of immigration-related risks.

There are numerous regulatory systems across the Middle East to navigate that can increase regional specific challenges. Each jurisdiction will have its own set of rules and procedures for corporate restructuring which requires a considered and careful analysis.

For example, immigration and labor inspections in the UAE and Saudi Arabia are common, and changes to a trade licence could result in an inspection by the authorities. In addition, any findings of illegal labour where employees do not have the proper work authorization, can have consequences ranging from immigration portal blocks (which may prevent employers from being able to apply to sponsor expatriates) to large financial penalties, as well as reputational damage to the affected organization. Companies acquiring organizations in the UAE Mainland, for example, will also need to consider localization policies (i.e. Emiratization), and how quickly they will be required to meet local hiring targets. Saudization rules in Saudi Arabia are also stringent, so careful attention is needed to ensure compliance with these rules, as well as consideration as to whether incoming employees from the acquired company would not affect Saudization targets or quotas.

Cultural sensitivity and integrating global workforces

Understanding different cultural nuances is critical for effective communications with different stakeholders, particularly in the context of cross border M&A deals where teams move from one country to another (e.g., changes in headquarters). This is also integral to effective integration post-deal and the harmonization of cultures and policies in the merged organization.

Managing talent, particularly across different territories in the region, requires careful consideration of territory-specific protectionism policies, such as quotas and fair hiring practices. Understanding the relevant population make up (both pre- and post-deal) is essential to effectively navigate territory-specific requirements.

Political instability

The region is currently facing geopolitical challenges given the ongoing war in Israel-Palestine. Crises such as war can result in increased uncertainties for businesses: from the security and safety of global workforces to ongoing business continuity and compliance. Understanding the geopolitical risks, and how best to navigate and protect against uncertainties, is key for successful M&A activity in the region.

Visa and work permit transfers

When merging or acquiring a company, or embarking on other corporate structural changes, the transfer of employees across borders is commonplace. As such, navigating the complexities of transferring visas, work permits, and residency applications is crucial to maintain both business continuity and compliance. Employers should understand the specific requirements and timelines for transferring or displacing noncitizen employees. This may involve reapplying for visas, work permits, and residency applications, or transferring existing ones to the acquiring company, which may take on the role of a sponsoring organization under a principle known as “immigration successorship in interest.”

In the UAE, for instance, the mechanism or framework to ‘transfer’ employees from one entity to another will typically involve cancellation of the employees’ permits and an application for a new one under the sponsorship of the acquiring company. The transfer can only be completed in the UAE from an immigration perspective and with a legal right to work conferred, once the employee has work permission for the acquiring company. It is critical to be able to provide advice on processes and timelines, and to permit employers to take the necessary steps to ensure that their employees have the correct immigration documentation and work authorization.

How we can help

Global M&A activity continues to transform the business landscape. As companies engage in these transactions, understanding and proactively addressing the complex immigration considerations are crucial to a successful M&A transaction. Whenever M&A activity is envisioned, we recommend that an immigration and mobility consultation be arranged as soon as possible in order to discuss timelines, costs, and compliance issues, in an effort to protect against disruption and ensure business continuity and prosperity.

Vialto’s M&A team can provide specific guidance and advice on assessing workforce mobility, managing employee transfers, harmonizing immigration policies, ensuring compliance, and retaining key talent. Our global mobility and immigration lawyers and professionals work closely with companies to support employers with taking steps to navigate the global immigration landscape effectively during M&A transactions, designed to further enhance employee retention and morale. Proactive planning and engagement with immigration experts can contribute significantly to the success of these endeavours, thereby potentially enabling organizations to leverage the benefits of a M&A transaction while facilitating the mitigation of potential challenges.

Listen for more insights:

Listen to our ‘On the Move’ podcast episode 25: ‘Don’t let immigration issues derail your M&A deal’ where our global immigration team, led by Sharan Kundi (Partner, Global Immigration Practice Lead), discusses how immigration can impact a M&A transaction, and provide practical advice on how organizations can address this important issue.

All of our ‘On the Move’ podcast episodes can be accessed here: vialtopartners.com/podcasts

Contact us

For a deeper discussion on the above, please reach out to your Vialto Partners point of contact, or alternatively:

Anir Chatterji
Immigration Partner
EMEA

Rekha Simpson
Director
UAE Immigration Lead

Ali Ibrahim
Director
KSA & Bahrain Immigration Lead

Raj Mann
Director
Global Immigration Advisory Lead

Further information on Vialto Partners can be found here: www.vialtopartners.com
For additional alerts, please visit www.vialtopartners.com/regional-alerts
Contact us on the following address: me-immigration@vialto.com

1. https://www.middleeastbriefing.com/news/saudi-arabia-and-the-uae-top-middle-easts-2023-ma-activity/