Increased M&A Activity

Over the past 12 months, there has been a noticeable increase in M&A activity compared to previous years. More investors are entering the market, often partnering with local shareholders. This is being achieved either through existing companies or by merging multiple entities, reflecting a growing trend in strategic collaborations.

Top Trends in the Last 12 Months

Increased foreign investment and partnerships

A key trend has been the rise in companies partnering with local businesses. In some cases, foreign investors are acquiring full ownership, while others are forming strategic partnerships to enter the market.

Expansion of distribution and agency agreements

Another significant development is the growing presence of distribution and agency agreements, with more international businesses entering the Iraqi market through these structures.

Over the past 12 months, several industries have seen notable M&A activity, including the following.

• Food industry – increased investment and consolidation within food production and distribution.
• Automotive industry – a rise in M&A, particularly in car manufacturing and dealerships.
• Construction – growing partnerships and acquisitions to support infrastructure and real estate development.
• Oil and gas – significant M&A activity, driven by market expansion and foreign investment.

Share Transfer Process in Iraq

The transfer of company shares in Iraq involves the following steps.

• Due diligence – verify the company’s legal standing, financial health, and any restrictions on share transfers.
• Agreement and documentation – sign a share purchase agreement and obtain necessary approvals per the company’s articles of association.
• Regulatory compliance – ensure compliance with Iraqi Companies Law, including the 51% local ownership rule for foreign investors.
• Submission to the Companies’ Registrar – file the transfer request with required documents, including the agreement and updated records.
• Approval and registration – upon approval, the new shareholder structure is officially recognised.

In Iraq, the primary regulator overseeing M&A is the Companies’ Registration Department under the Ministry of Trade. This Department is responsible for the registration and monitoring of both domestic and foreign companies. Its main tasks include the following.

• Online registration ‒ provides an online platform for registering and updating company details, with downloadable forms and clear guidelines.
• Fee schedules and documentation ‒lists current fee information and detailed instructions to ensure compliance with Iraqi corporate law.
• Regulatory updates ‒ publishes news and announcements on legislative changes and regulatory amendments.
• Searchable company database ‒ allows users to verify company registration status and access detailed company information.
• Support ‒ includes contact details for further assistance and clarifications on the registration process.

There are restrictions on foreign investment in Iraq. According to the amended Iraqi Companies Law Number 21 of 1997 and the amended law of 2019:

• foreign investors are limited to a maximum of 49% ownership in any company; and
• at least 51% of a company’s shares must be held by Iraqi nationals.

These provisions are designed to promote local participation and ensure compliance with national ownership requirements.

In Iraq, there is no specific antitrust legislation governing business combinations. Instead, general legal provisions and other regulatory measures address related issues:

The Competition Anti-Monopoly Law of 2010 states certain limitations and restrictions on the market practice, but it does not deal directly with the control or limitation on merger transactions or the acquisition of shares in companies.

Based on the Iraqi Labour Law No 13 of 2015, the main requirements include the following.

• Local employment requirement ‒ at least 50% of the company’s employees must be Iraqi nationals.
• Foreign worker permits ‒ foreign employees must obtain a work permit and a strict multi-entry visa. The work permit should be issued in the name of the investor or another designated company.
• Social security contributions ‒ all employees must pay social security contributions.

Foreign employees may be exempt if they are covered under a social security scheme in their own country.

These regulations ensure that companies comply with local employment standards and social security obligations when acquiring or operating in Iraq.

All foreign investors undergo a national security review before any M&A is finalised.

• Security clearance process ‒ the process is conducted by the National Security Office, the Ministry of the Interior, and the Intelligence Office.
• Processing time ‒ the review typically takes 10 to 15 days. If no objections or additional obligations are raised during this period, the Companies’ Registrar proceeds with the M&A.

This review ensures that national security considerations are met prior to completing any acquisition.

M&A in Iraq have generally been straightforward. Until last year, demand for these transactions was relatively low, and there have not been any significant court decisions or legal developments specifically related to M&A activity.

No significant changes have been made to takeover law in the past 12 months. The existing condition, which limits foreign investors to a maximum of 49% ownership, remains in place. This restriction has encouraged investors to partner with local stakeholders or invest in existing companies rather than establishing new entities.

Stakebuilding Strategies in Iraq

It is not customary in Iraq for a bidder to build a stake in the target company prior to launching an offer. Instead, M&A are based on the target company’s existing status.

Due Diligence Focus

• Business operations: bidders concentrate on evaluating the company’s operations and business model.
• Liabilities and financial health: a thorough review of outstanding liabilities and financial stability is undertaken.
• Employees and shareholders: a detailed analysis of the workforce and existing shareholder structure is carried out.

In summary, the primary strategy in Iraq is to conduct comprehensive due diligence rather than engaging in pre-offer stakebuilding.

Material Shareholding Disclosure

In Iraq, material disclosures cover all the significant records of a company. These include the following.

• Financial statements – detailed reports of the company’s financial performance.
• Shareholders’ resolutions – documentation of decisions made by the shareholders.
• Financial liabilities and transactions – information on debts, loans, and significant financial dealings.
• Partnerships and business deals – details of any joint ventures or strategic alliances.
• Employee records – lists of employees along with their salaries.
• Loans and debts – comprehensive records of outstanding financial obligations.

Filing Obligations

The filing obligations apply to the company rather than to individual shareholders. Companies are required to:

• file annual financial statements;
• submit monthly payroll taxes and social security contributions; and
• provide an annual Ultimate Beneficiary Owner Declaration.

These requirements ensure transparency and accountability, providing regulators and stakeholders with a clear view of the company’s operational and financial status.

Alteration of Reporting Thresholds and Other Hurdles to Stakebuilding in Iraq

According to the Iraqi Companies Law, reporting and filing requirements are mandatory and cannot be altered or reduced by the articles of incorporation or by-laws. Companies may only impose additional obligations provided these are consistent with the statutory requirements. For example, general assembly meetings can have increased requirements, but they cannot reduce what is stipulated by law.

Another common hurdle in stakebuilding is the voting process. Shareholders often face difficulties reaching a majority agreement on alternative voting rules, as they must adhere to the procedures set out in the Companies Law.

Lack of Clear Regulation

Dealing in derivatives is not clearly regulated under Iraqi law.

Case-by-Case Decision

The Register of Companies makes decisions on derivatives transactions on a case-by-case basis.

This approach means that each derivatives deal is individually assessed to ensure compliance with the overall corporate and financial framework.

Iraq’s competition framework is governed by Law Number 14 of 2010 on Competition and Monopoly Prevention. However, this Law does not set out any filing or reporting obligations for derivatives under securities disclosure or competition laws.

The Law primarily focuses on preventing monopolistic practices and maintaining fair competition. It does not include provisions specifically addressing derivatives transactions.

Therefore, there are no additional mandated filing or reporting obligations for derivatives under this law.

Shareholder Disclosure Obligations

The law in Iraq does not require shareholders to declare the purpose of their acquisition or their intention regarding control of the company. However, the Companies’ Registrar mandates that all companies file an Ultimate Beneficial Owner (UBO) declaration. This UBO form must clearly identify the ultimate owner who controls the shares in the company.

Disclosure Requirements for Target Companies

Iraq’s law does not mandate a specific stage at which a target company must disclose a deal. There is no legal obligation to disclose when first approached, during negotiations, upon signing a non-binding letter, or at the point of signing definitive agreements.

Acquirer’s discretion

Acquirers can stipulate disclosure conditions within the deal terms. This allows them to require the target to disclose relevant business information at a particular stage, based on their requirements.

Timing of Disclosure

There are no statutory regulations governing the timing of disclosure in this context. As a result, market practice is the dominant criterion.

Market practice prevails

In the absence of legal requirements, companies follow prevailing market practices to determine the appropriate timing of disclosure.

Discretion in negotiations

Acquirers and targets can agree on disclosure conditions during negotiations, allowing flexibility to meet their specific needs.

Scope of Due Diligence in a Negotiated Business Combination in Iraq

Due to the instability in Iraq and the often incomplete and inaccessible public records, a very detailed due diligence process is essential. The following aspects are typically scrutinised.

Corporate records and legal structure

• Review of articles of incorporation, shareholders’ resolutions and any amendments.
• Verification of the company’s legal status and organisational structure, recognising that public records may be incomplete.

Financial due diligence

• Examination of financial statements, bank accounts and outstanding liabilities.
• Analysis of cash flow, profitability and debt levels.

Operational and commercial due diligence

• Assessment of the target’s business model, market position and customer base.
• Evaluation of supplier relationships and key contractual obligations.

Employment and labour matters

• Confirmation of compliance with Iraqi labour laws, including employee contracts and social security contributions.
• Review of the composition of the workforce and related liabilities.

Regulatory compliance

• Verification of regulatory filings and compliance with Iraqi Companies Law and other relevant regulations, despite the challenges posed by incomplete public records.

Risk and liability assessment

• Identification of potential legal liabilities, ongoing disputes or pending litigation.
• Evaluation of insurance coverage and any contingent liabilities.

Intellectual property and assets

• Confirmation of the ownership of intellectual property and other critical assets.
• Investigation of any encumbrances or disputes over these assets.

Given the challenges in obtaining reliable public records in Iraq, a comprehensive due diligence process is always recommended to fully assess the target company’s status and mitigate risks.

Under Iraqi regulation, neither standstills nor exclusivity provisions are mandated. These conditions are typically negotiated between the parties, rather than being required by law.

Documentation of Tender Offer Terms and Conditions

Under Iraqi law, M&A are governed by the Iraqi Companies Law. The process is based on a direct offer and acceptance model and is typically executed through two main documents:

• Share Transfer Resolution: a formal document that authorises the transfer of shares; and
• Share Transfer Agreement: a contract that outlines the terms and conditions of the share transfer.

Both documents are strictly regulated by law and the Companies’ Registrar, and must adhere to a prescribed format that the parties cannot deviate from. Consequently, the process of tendering is not applicable under Iraqi law for M&A.

However, the parties may enter into a shareholder agreement, which is not mandatory and is governed by the Iraqi Civil Code.

Timeline for Acquiring or Selling a Business in Iraq

Acquiring a business in Iraq is primarily conducted through a share transfer process. The duration of the process depends on several factors, including the following.

• Regulatory compliance ‒ the target company must be fully updated with tax authorities and social security requirements.
• Due diligence ‒ a comprehensive due diligence process is essential to assess all aspects of the target company.

Assuming full compliance and a smooth due diligence process, the overall transaction typically takes between two and four months.

Under Iraqi law, there is no mandatory offer threshold prescribed. Any terms and deadlines related to an offer are determined by the parties involved and outlined in the offer document.

• No statutory requirement: the law does not mandate a specific threshold or timeframe for making an offer.
• Contractual terms prevail: the offer’s conditions, including timing, are typically negotiated between the parties and detailed in the offer itself.

This approach allows for flexibility in structuring offers while ensuring that the agreed terms are clearly documented.

Almost all M&A in Iraq operate on a share transfer model. Under Iraqi law, each share carries a nominal value of 1 Iraqi IQD, so share transfers typically occur in exchange for cash payments based on this value. However, the actual economic value of the business is determined separately. In the shareholder agreement, the overall purchase price is clearly delineated, breaking it down into the nominal share value and the additional business value.

To bridge value gaps in industries with high valuation uncertainty, parties may utilise various mechanisms, such as:

• earn-outs;
• deferred payments; and
• contingent adjustments based on future performance.

These tools allow the parties to address valuation differences while providing flexibility in the transaction structure.

Iraqi law does not regulate takeovers.

M&A in Iraq are primarily executed through a share transfer process rather than a tendering approach.

As a result, the concept of a minimum acceptance condition for tender offers does not apply in this jurisdiction.

The process is governed by the Iraqi Companies Law, which outlines the procedures for share transfers without incorporating tender offer conditions.

Financing Conditions in Business Combinations

Under Iraqi law, the full value of the shares in the target company must be paid in cash.

No financing is permitted by law.

Consequently, a business combination cannot be made conditional on the bidder obtaining financing.

Enforcement of Share Transfers

If the seller does not close and sign the share transfer after all conditions have been met, the buyer can seek a court judgment to enforce the transfer.

Other Deal Security Measures

Provisions such as break-up fees, match rights, force-the-vote provisions and non-solicitation clauses are not common practice under Iraqi law.

Interim Periods

There have been no recent regulatory changes affecting the length of interim periods.

Shareholding Influence

Control is primarily determined by the percentage of shares held by the bidder.

Manager Appointment Rights

Bidders can negotiate for the right to appoint the company manager. The manager is key to operating and managing the company, and this appointment right can effectively enhance the bidder’s influence over the target.

These additional governance rights allow a bidder to increase its control over the target company even without obtaining 100% ownership.

Permissibility

Shareholders are allowed to vote by proxy in Iraq.

Procedure

A shareholder may nominate a person or a lawyer to vote and sign on their behalf through a legally issued power of attorney (POA).

This approach ensures that shareholders can participate in meetings and decisions even if they are unable to attend in person.

Squeeze-Out Mechanisms and Short-Form Mergers in Iraq

No statutory provision

Iraqi law does not regulate the tendering process, and therefore, no statutory mechanisms such as squeeze-out or short-form mergers exist.

Implications

In the absence of legal provisions, buyers must negotiate with non-tendering shareholders on a case-by-case basis if they wish to acquire their shares.

Iraqi law does not allow obtaining irrevocable commitments from principal shareholders to tender or vote in a particular manner.

Public Disclosure of a Bid in Iraq

Under Iraqi law, the share transfer process does not involve a traditional tender or bid approach. Instead, the transaction is made public when the share transfer is filed with the Companies’ Registrar. This filing date marks the official disclosure of the bid.

Disclosure Requirements for the Issuance of Shares in a Business Combination

In cases where mergers lead to the issuance of new shares, a full disclosure of all financial, legal and administrative records by the parties is required. This comprehensive disclosure ensures transparency and supports the due diligence process for regulators, investors and other stakeholders.

Financial Statements in Disclosure Documents

In the context of a share transfer in Iraq, disclosure obligations differ based on the legal status of the parties. Financial statements are required only from legal entities rather than natural persons.

If the buyer is a legal entity, financial statements (whether pro forma or otherwise) must be provided.

These financial statements must be prepared in accordance with the unified accounting system used in Iraq, ensuring consistency in financial reporting.

This framework ensures that only relevant entities are held to these disclosure standards, in line with Iraqi accounting practices.

Disclosure of Transaction Documents

For a share transfer in Iraq, full disclosure of the transaction documents is required. The following documents must be disclosed and filed with the Companies’ Registrar:

• Share Transfer Resolution; and
• Share Purchase Agreement.

Directors are primarily responsible for managing all aspects of the company, including its legal, administrative and financial affairs. Their role is to ensure the smooth operation and governance of the company during the business combination process, namely:

• management of company affairs ‒ directors must oversee and manage all facets of the company’s operations, ie, legal, administrative and financial; and
• reporting obligations ‒ directors report exclusively to the direct shareholders of the company, rather than to all stakeholders.

Under Iraqi law, there is no requirement or regulation mandating the establishment of special or ad hoc committees in business combinations.

Court Deference to the Board of Directors in Takeover Situations

In Iraq, courts strictly adhere to statutory provisions when evaluating takeover situations. Unlike the business judgement rule in the United States, which affords significant deference to the board’s decisions, Iraqi courts do not automatically defer to the board’s judgement. The focus remains on the legal requirements as set out in the applicable laws, and the board’s decision does not influence the court’s interpretation or application of those laws.

Due Diligence Oversight

Reputable local attorneys, who are admitted and well-versed in Iraqi law, typically conduct and oversee the due diligence process.

Primary Independent Advice

This due diligence review is the most common form of independent outside advice provided to directors, ensuring that all legal, financial and regulatory matters are thoroughly assessed.

Judicial and Regulatory Scrutiny of Conflicts of Interest in Iraq

Iraqi laws regulate conflicts of interest for directors, managers, shareholders and advisers. However, in practice, such conflicts are not monitored to a high extent.

Conflict of interest provisions are included in relevant corporate and commercial legislation.

Enforcement and oversight of these provisions tend to be limited compared with other jurisdictions.

Hostile tender offers are not regulated in Iraq as the share transfer process does not depend on a tender approach. Transactions are typically conducted through a direct share transfer process, with an offer and acceptance model, rather than via a tender offer.

Under Iraqi law, defensive measures used by directors are not regulated. This means there is no statutory framework that specifically permits or restricts such measures.

Under Iraqi law, defensive measures are not regulated. Consequently, there is no statutory framework outlining common defensive measures for directors in business combinations.

Iraqi law does not regulate the duties directors owe when enacting defensive measures. Consequently, there are no specific statutory guidelines or obligations imposed on directors in this context.

Directors do not have the authority to unilaterally prevent a business combination. The power to approve or reject a share transfer lies exclusively with the shareholders, meaning that directors cannot simply “just say no” to block the transaction.

Litigation in connection with M&A is very rare in Iraq. The share transfer process is direct and straightforward, which generally prevents disputes from escalating to court-level litigation.

While litigation in M&A deals is rare in Iraq, when disputes do arise they typically occur at one of two stages.

• Payment of consideration ‒ litigation may occur if there are issues in fulfilling the payment obligations outlined in the transaction.
• Non-fulfilment of seller duties ‒ disputes may also be brought when the seller fails to meet the agreed obligations, which can impact the completion of the transaction.

Lessons from Pending Transactions in Early 2020

Iraq did not encounter any pending transactions directly disrupted by COVID-19 in early 2020. Although lockdown measures caused delays across all transactions, both parties experienced these delays equally, and no deals were broken. Consequently, no significant disputes arose, and there are no major lessons learned from that period.

Shareholder activism is not a significant force in Iraq. There is very little focus on such activism, and it does not play a substantial role in influencing corporate decisions.

Activist efforts aimed at encouraging companies to enter into M&A transactions, spin-offs or major divestitures are virtually non-existent in Iraq. There is little to no organised shareholder activism in this area, and such activities do not influence corporate decision-making in the jurisdiction.

In Iraq, there are virtually no activists focused on M&A, and as such, interference with the completion of announced transactions is not a concern.