How do private equity funds exit investments in the UAE in 2026?

The exit route determines the legal structure, and the legal structure must be built before the exit

The UAE's private equity market has matured. The DIFC and ADGM together host over 10,000 active companies. M&A deal volume in the Middle East reached 271 transactions in the first half of 2025, with the UAE leading by number of deals. The listing of companies like Talabat, Spinneys, LuLu, and Dubai Residential REIT on the DFM and ADX has demonstrated that the public markets can absorb PE-backed offerings. But the choice of exit route shapes every legal decision from the fund's first investment through the final distribution.

An IPO requires 12 to 18 months of preparation, a listing vehicle in the right jurisdiction, and compliance with the new Capital Markets Law (Federal Decree-Law No. 33 of 2025), which entered into force on 1 January 2026. A trade sale requires a share purchase agreement that addresses UAE-specific risks including competition clearance, corporate tax exposure, and transfer pricing documentation. A secondary buyout requires a clean legal structure, institutional-quality governance, and financing arrangements that regional banks and private credit funds can underwrite. Corporate lawyers in the UAE advise PE funds and their portfolio companies on exit structuring, SPA negotiation, listing vehicle formation, and regulatory compliance across all three routes.

• The new Capital Markets Law reconstitutes the SCA as the Capital Market Authority (CMA) and introduces a consolidated, enforcement-driven regulatory regime for securities offerings and listings on the DFM and ADX. The law applies to foreign issuers, including ADGM and DIFC companies, when their securities are offered or traded in the UAE. Price stabilisation now has a statutory safe harbour, resolving a long-standing legal ambiguity that had created risk for IPO underwriters.
• ADGM and DIFC companies can list on the DFM or ADX without converting to a PJSC. Fertiglobe's ADGM listing on the ADX in 2021 established this route, and subsequent listings (Americana, Investcorp Capital, Spinneys, LuLu, Talabat) have made it standard practice. The ADGM and DIFC companies law regimes, modelled on the UK Companies Act, provide the corporate governance flexibility that PE-backed issuers require: multiple share classes, tag-along and drag-along provisions, and familiar English-law shareholder protections.
• The 2025 CCL Amendment (Federal Decree-Law No. 20 of 2025) now permits private joint stock companies to raise capital through private placement on UAE financial markets, and simplifies the conversion of an LLC into a joint stock company. The statutory 12-month founders' lock-up no longer applies to securities offered by private placement and listed on a UAE market.
• Trade sales account for the majority of PE exits in the UAE. A typical transaction closes within four to nine months. The share purchase agreement must address UAE-specific issues including competition clearance under the Federal Competition Law, corporate tax representations (especially the company's QFZP status and transfer pricing compliance), employment law provisions (gratuity liabilities, WPS records), and the jurisdiction of the governing law and dispute resolution (DIFC Courts, ADGM Courts, or DIAC arbitration).
• Secondary buyouts are the fastest-growing PE exit category in the region. The DIFC and ADGM provide English common law frameworks with sophisticated legal instruments for PE-to-PE transfers: continuation funds, GP-led secondaries, and LP interest transfers. Regional banks and private credit funds have developed the capacity to underwrite these transactions, giving incoming sponsors more flexibility on financing.
• Corporate tax applies to exit proceeds. Capital gains on the sale of shares in a UAE company are part of the seller's taxable income unless the participation exemption applies (5% ownership, 12-month holding, 9% rate in the subsidiary's jurisdiction). For PE funds structured through DIFC or ADGM vehicles with QFZP status, the interaction between qualifying income and exit proceeds must be modelled before the exit is executed.

Who this applies to

PE and VC fund managers evaluating exit options for UAE portfolio companies. The choice between IPO, trade sale, and secondary determines the legal preparation timeline, the regulatory approvals required, and the tax treatment of the exit proceeds.

Limited partners in PE funds with UAE exposure who need to understand the exit mechanics, the lock-up implications of an IPO, and the liquidity timeline of each route.

Portfolio company management teams preparing for an exit event. The company's corporate tax compliance, financial reporting quality, and governance structure directly affect the achievable valuation and the speed of execution.

Investment firms and family offices considering a PE investment in the UAE and evaluating how the exit will work before committing capital. Exit structuring should be part of the investment thesis from day one.

Exit route 1: IPO on the DFM or ADX

Listing vehicle options

A PE fund preparing a portfolio company for IPO in the UAE has two primary structural paths.

Onshore PJSC. The portfolio company converts to a Public Joint Stock Company under the Commercial Companies Law (Federal Decree-Law No. 32 of 2021, as amended by Decree-Law No. 20 of 2025). The PJSC is listed on the DFM or ADX and is subject to the CMA's Corporate Governance Guide, the SCA's offering regulations, and the applicable exchange listing rules. The 2025 CCL Amendment simplified the conversion from LLC to joint stock company by allowing existing management to lead the process (subject to shareholder approval). Between 25% and 75% of issued shares must be offered in the IPO (up to 100% for qualified-investor-only offerings).

ADGM or DIFC holding company. The fund establishes a new holding company in ADGM or DIFC, transfers the portfolio company into it, and lists the holding company's shares on the DFM or ADX. The holding company is governed by the ADGM Companies Regulations or the DIFC Companies Law, both modelled on UK-style corporate law. This route avoids the structural limitations of the PJSC form (which historically did not permit multiple share classes) and provides the corporate governance tools PE sponsors expect: weighted voting rights, board composition protections, and anti-dilution provisions. The Emirates Investment Authority's right to subscribe for up to 5% of a PJSC IPO does not apply to free zone or foreign company listings.

The ADGM/DIFC route has become the preferred path for PE-backed IPOs. The listed companies under this route (Fertiglobe, Americana, Spinneys, LuLu, Talabat) operate across the UAE and internationally but use the financial free zone as a corporate domicile for governance flexibility and investor familiarity.

The new Capital Markets Law

Federal Decree-Law No. 33 of 2025 (the Capital Markets Law) entered into force on 1 January 2026. It replaces the former SCA framework and introduces several changes relevant to PE-backed IPOs.

The CMA (successor to the SCA) now has broader jurisdiction, including over securities offerings by ADGM and DIFC entities that target onshore UAE investors. The law introduces a tiered enforcement framework with higher penalties (the previous regime capped exchange fines at AED 100,000). Market abuse provisions now include a delayed disclosure mechanism for inside information, consistent with EU Market Abuse Regulations. And the statutory safe harbour for price stabilisation removes the legal risk that had discouraged international banks from acting as stabilisation managers on UAE IPOs.

Entities subject to the Capital Markets Law must regularise their status within one year from 1 January 2026. Existing SCA decisions remain in force where they do not conflict with the new law, but implementing regulations are expected throughout 2026.

Lock-up periods and post-IPO liquidity

PE funds exiting through an IPO do not achieve full liquidity on listing day. Lock-up periods for major shareholders are standard, and the listing exchange may impose additional restrictions. The practical liquidity timeline for a PE fund is the IPO date plus the lock-up period (six to 12 months) plus the time required to sell the remaining stake in the secondary market without depressing the share price.

For funds approaching the end of their term, the IPO lock-up can create a timing problem. A fund that lists a portfolio company 18 months before its final distribution date may not have enough runway to sell its stake at an optimal price. This timing risk is one reason PE funds increasingly consider dual-track processes (preparing both an IPO and a trade sale in parallel) to preserve optionality.

Exit route 2: trade sale

SPA structuring for UAE targets

A trade sale involves selling the portfolio company (or the PE fund's stake in it) to a strategic buyer, a regional conglomerate, or another financial investor through a negotiated share purchase agreement. The SPA is the primary legal document, and it must address UAE-specific risks that international buyers may not anticipate.

Competition clearance. The Federal Competition Law requires notification and approval for transactions that meet the economic concentration thresholds. The Competition Authority at the Ministry of Economy reviews the filing, and the process requires Arabic-language documentation. Until the implementing regulations are updated, filings must include the agreement, constitutional documents, two years of audited financials, shareholder registers, and an economic impact analysis. The clearance timeline is unpredictable, and the SPA should include a condition precedent for competition approval with a longstop date.

Corporate tax representations. Since the first full cycle of corporate tax returns has been filed, buyers scrutinise the target company's tax position. The SPA should include representations covering registration with the FTA, timely filing of returns, payment of tax due, compliance with transfer pricing rules (including availability of Master File and Local File), and the status of any FTA audit or assessment. For free zone companies, the SPA should address whether QFZP status has been maintained in all periods and whether the de minimis threshold has been breached.

Employment and gratuity. UAE employment law requires payment of end-of-service gratuity to all employees upon termination. In a share sale, the employment relationships continue and the liability transfers with the company, but the buyer will want representations that gratuity has been properly accrued, that WPS records are compliant, and that no MOHRE disputes are outstanding. In an asset sale (less common in the UAE), the employment position is more complex.

Governing law and dispute resolution. The SPA's governing law and dispute resolution clause depends on the target company's jurisdiction. For DIFC entities, the DIFC Courts have jurisdiction and English common law applies. For ADGM entities, the ADGM Courts apply ADGM law (which directly applies English law). For mainland entities, the parties typically choose DIAC arbitration or (less commonly) the onshore UAE courts. International PE funds prefer DIFC or ADGM Courts because proceedings are in English, judgments are enforceable through reciprocal arrangements with the onshore courts, and the legal framework is familiar to international counsel.

Valuation and due diligence

Buyers adjust the purchase price for unresolved tax exposure. A target company with incomplete transfer pricing documentation, an unverified QFZP position, or outstanding FTA queries will have a lower enterprise value than a company with clean compliance. The cost of a pre-exit tax compliance review is modest compared to the valuation discount a buyer will apply for uncertainty.

PE funds should conduct a vendor due diligence exercise before launching the sale process. A vendor DD report (covering financial, tax, legal, and commercial findings) gives prospective buyers confidence and reduces the time spent in bilateral due diligence, which accelerates the transaction timeline.

Exit route 3: secondary buyout and continuation structures

PE-to-PE transfers

A secondary buyout involves selling the portfolio company to another PE fund. The incoming fund acquires the company (or the selling fund's stake) and assumes the responsibility for the next phase of value creation. Secondaries are popular in the UAE because the DIFC and ADGM provide the English common law instruments needed for complex PE structures: preferred equity layers, management incentive plans, ratchet mechanisms, and waterfall distributions.

The practical advantage of a secondary is speed. Because the buyer is a financial sponsor with experience in PE-owned assets, due diligence focuses on commercial and financial performance rather than governance structure (which the previous PE owner has already professionalised). A secondary can close in four months if the documentation is well prepared.

The disadvantage is pricing. Financial buyers do not pay strategic premiums. The multiple compression between a primary (strategic) exit and a secondary is the trade-off for speed and execution certainty. For fund managers approaching the end of a fund's term, the certainty of a secondary may outweigh the potential for a higher multiple through a longer trade sale process.

Continuation funds and GP-led secondaries

A growing alternative to a full secondary buyout is the GP-led secondary or continuation fund. The GP of the selling fund establishes a new vehicle, transfers the portfolio company into it, and offers existing LPs the choice between receiving cash (funded by the new vehicle's investors) or rolling their interest into the continuation fund.

This structure is suited to UAE portfolio companies where the GP believes significant value remains but the original fund's term has expired. The continuation fund gives the GP more time to execute the value creation plan (and potentially pursue an IPO or trade sale at a higher valuation), while providing liquidity to LPs who want to exit.

The legal complexity of a continuation fund lies in the conflict-of-interest management. The GP is on both sides of the transaction (seller and buyer). Independent valuation, LP advisory committee consent, and a fairness opinion are standard protections. The continuation vehicle is typically structured as a DIFC or ADGM limited partnership, with the fund manager holding a DFSA or FSRA fund management licence.

Corporate tax implications of PE exits

Capital gains on share disposals

A PE fund that sells shares in a UAE portfolio company realises a capital gain. That gain is part of the fund's (or the fund vehicle's) taxable income unless the participation exemption under Article 23 of the Corporate Tax Law applies.

The participation exemption requires: a minimum 5% ownership interest (or acquisition cost of at least AED 4 million), an uninterrupted 12-month holding period, and the subsidiary must be subject to corporate tax at a rate of at least 9% in its jurisdiction. For UAE-to-UAE disposals, the 9% rate condition is met because the portfolio company is subject to UAE corporate tax at 9%. For disposals of stakes in foreign subsidiaries, the rate in the foreign jurisdiction must be checked.

If the PE fund is structured through a DIFC or ADGM vehicle claiming QFZP status, the capital gain on a share disposal may qualify as qualifying income (0% rate) if the holding activity is a qualifying activity and the disposal meets the QFZP conditions. If the gain is classified as non-qualifying income, it is taxed at 9%. The classification depends on the nature of the holding, the fund vehicle's qualifying activities, and whether the gain pushes the entity's non-qualifying revenue above the de minimis threshold.

Tax DD as a valuation factor

Buyers in UAE trade sales now conduct detailed corporate tax due diligence. The introduction of corporate tax in June 2023 means most targets have only two to three years of compliance history. Gaps in that history (late registration, unfiled returns, inadequate transfer pricing documentation, unverified QFZP status) create risk that the buyer prices into the transaction as a valuation discount or addresses through specific indemnities in the SPA.

PE funds preparing for exit should commission a pre-sale tax compliance review covering FTA registration, corporate tax returns for all periods, transfer pricing documentation and intercompany agreements, QFZP status verification (for free zone entities), VAT compliance, and any outstanding FTA correspondence or audit activity. The cost of addressing these issues before the sale is a fraction of the valuation discount a buyer will demand for unresolved tax exposure.

Restructuring relief on pre-exit reorganisation

PE funds often reorganise the group structure before exit, consolidating subsidiaries, transferring assets into the listing vehicle, or separating non-core activities. These transactions can trigger corporate tax unless they qualify for qualifying group relief (Article 26) or business restructuring relief (Article 27) under the Corporate Tax Law.

Both reliefs carry a two-year clawback. If the transferred asset or the shares in the transferor or transferee leave the group within two years of the transfer, the relief is reversed and the gain is recognised at market value. For a PE fund planning to sell the reorganised group within two years of the internal restructuring, the clawback creates a tax cost that must be factored into the exit economics.

The solution is timing. Pre-exit restructurings should be completed at least two years before the anticipated exit date. For a fund planning an IPO with an 18-month preparation timeline, the restructuring must happen at least six months before the IPO process begins.

How should PE funds approach exit planning in the UAE?

Exit planning in the UAE starts at investment. The fund's entry structure determines its exit options. A portfolio company incorporated as a mainland LLC with no audited financial statements, no corporate tax compliance history, and no transfer pricing documentation is two years away from being IPO-ready and will attract valuation discounts in a trade sale. A company structured from inception with an ADGM or DIFC holding vehicle, IFRS-compliant audited accounts, clean corporate tax filings, and transfer pricing documentation is exit-ready within months.

Three priorities for PE funds with UAE portfolio companies approaching exit. First, confirm the corporate tax position. QFZP status, transfer pricing compliance, and FTA registration should be verified and documented before any buyer or underwriter examines the company. Second, choose the exit route early enough to prepare the legal structure. An IPO requires 12 to 18 months. A pre-exit restructuring requires two years before the exit date to avoid clawback risk. Dual-track preparation (IPO and trade sale in parallel) preserves optionality but requires resources. Third, select the governing law and dispute resolution forum for the exit documentation. DIFC and ADGM provide the institutional quality and English-language proceedings that international PE sponsors expect. The choice should be made when the fund vehicle is established, not when the exit is underway.

For funds evaluating exit options across their UAE portfolio, legal advice on structuring, regulatory requirements, and corporate tax positioning should be obtained before the exit timeline begins. The cost of restructuring at exit is higher than the cost of structuring correctly at entry.

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