Today, LSX Lawfirm will give you an article about: “Process of an M&A deal in Vietnam”
Legal grounds
Law on enterprised 2020
What is M&A? Main forms of M&A
What is M&A?
M&A (Mergers and Acquisitions) is the merger and acquisition of businesses in the market. As a basic principle, in order to conduct an acquisition or merger of a company, it is usually necessary to create new values for the members/shareholders that maintain the old status
Main forms of M&A
M&A can be done in many different forms. Based on the corporate financial structure, the M&A can be done by:
- Merger and consolidation: merger is the merger of this company into another company, then, the merged company ceases to exist, the merging company still exists; consolidation will create a completely new company on the basis of amalgamation of old companies, then the old companies will no longer exist;
- Acquisition of shares: mainly expressed by this company collecting and buying most or all of the shares of other company’s shareholders;
- Acquisition of assets: is a process by which companies jointly negotiate to buy and sell a certain amount of assets in the target business.
In which, the most common form of M&A activities is share repurchase or asset repurchase.
Related articles:
Distinguish between business consolidations and mergers in Vietnam
What is a business merger under Vietnamese Law?
Forms of business mergers and acquisitions in Vietnam
General process of an M&A deal in Vietnam
Preparation phase – Before M&A
The preparation stage for an M&A transaction plays a decisive role in the success or failure of the M&A deal. For the seller, careful planning and preparation is crucial to the success of the transaction. For the buyer, this is a very important stage. Understanding and evaluating the target audience is key in whether the parties have reached the official transaction stage or not.
In the investment preparation stage, the activities of searching, approaching and evaluating the target audience roughly divided into 2 steps as follows:
Step 1: Reach the target audience
Reaching the target audience can be through many channels such as: Marketing of the seller, self-searching in the information network of the buyer, or through consulting units, brokerage organizations in the same investment field. business consultants or units specializing in M&A consulting.
At this step, reach depends on the seller’s preliminary assessment of the following factors before deciding to proceed to the next step of the acquisition path:
The target audience must have activities in the field consistent with the development orientation of the buyer;
The target audience usually has an established source of customers and partners or has a certain market share in the market that the seller can continue to exploit in accordance with the buyer’s market grabbing strategy;
And the target audience usually has a long-term or medium-term investment scale leveraged as a result of technology investment, taking advantage of management experience, taking advantage of skilled labor;
The target audience has a certain position in the market, helping the buyer to reduce short-term costs and increase market share, taking advantage of the ability to cross-sell services or take advantage of product and business knowledge. market experience to further consolidate and create new business investment opportunities;
Then the target audience has the advantage of available land, infrastructure, and facilities utilized to minimize initial investment costs.
Step 2: Appraisal report
Based on the preliminary assessment in step 1, the buyer will hire professional legal and financial consulting units to assess the overall target audience; before making a decision to have a transaction. or not.
However, in reality, the seller not required to provide all internal information of the enterprise; depending on the internal information control regulations of the seller, specialized laws or at the request of the seller. shareholders… Therefore, usually the parties should sign an information confidentiality agreement before the buyer can access the seller’s data.
In Vietnam, in this stage, depending on the target audience and the needs of the buyer; the buyer usually organizes an assessment of one of two or both types:
Financial Due Diligence Report (“Financial Due Diligence”): focusing on checking compliance with accounting standards; capital transfer; provisioning, loans from organizations and individuals, and stability. Determining cash flow (taking into account the business cycle), checking asset depreciation and debt recovery…
Legal due diligence report (“Legal Due Diligence”): focuses on assessing all legal issues related to legal status; capital contribution and status of shareholders; and rights in detail. and legal obligations of the target audience, assets, employees, projects, etc.
Although only a step in the overall process of an M&A; the results of detailed appraisal reports play an indispensable role for the buyer; helping the buyer to understand the overall issues faced during the acquisition and corporate reorganization process.
Phase of negotiation and transaction execution – Signing M&A contract
Negotiate and sign M&A contracts
Based on the results of detailed appraisal, the buyer can determine; whether the target transaction type is a full or partial acquisition, as a basis for negotiating content M&A. Some things to keep in mind at this stage are as follows:
Understand the difference between “Merger” and “Acquysition”: Buyers and sellers need to understand the types and variations of the M&A transaction form to negotiate the contents for the transaction; appropriate; and effective. In fact, M&A is always put together but has different nature: With “Merger” (Buy), the acquired company ceases to exist, completely acquired by the seller; meanwhile, with “Acquysition”, the two parties agree to merge into a new company instead of operating and owning separately. In “Acquysition” itself, there are many very rich variations such as: horizontal mergers, market expansion mergers; product expansion mergers, group mergers; mergers and acquisitions, mergers and acquisitions
In addition
Reasonable pricing: Buyers and sellers often cannot meet at the price of the transaction: the M&A paradox often mentioned is that the buyer offers too high a price and the seller only accepts a low price. To solve this problem; the parties to an M&A transaction often hire an independent appraiser to determine the value of the buyer.
The contract needs to be complete, transparent, and fully anticipating all situations: The product of this stage is a contract that records the form, price; and content of the M&A deal. If you can go to this step, you can get close to the final stage of M&A. The M&A contract is the expression and recognition of the commitments of the parties to the transaction, both referring to the legal aspect and the recognition of the mechanism for harmoniously coordinating the factors related to the transaction. Other M&A such as finance, labor, management, market development, etc. The contract also needs to provide for different situations occurring during and after the M&A and the handling of consequences. In other words; the M&A Contract needs to design to become a tool to ensure the interests of the parties involved in the transaction until the post-M&A period.
Legal procedures to record M&A
Business mergers and acquisitions only recognized by law when all legal procedures related to the recording of the transfer from the seller to the buyer completed; especially for assets registered. signed with the competent authority.
When this step completed, an M&A transaction considered completed.
Corporate restructuring phase – Post-M&A
The post-M&A business restructuring phase is a problem for the acquirer about not letting the M&A fail. The challenges of the buyer in this period are often uncertainties about personnel, changes in management policies; conflicts in corporate culture, etc.
In addition, the resolution of legal and financial issues oriented from the detailed appraisal stage; but having thoroughly resolved the outstanding issues and taken advantage of and exploited The strengths of the acquired business or not, lies in the ability and experience of the buyer.
Another problem that bothers managers in the post-M&A business restructuring period is the issue of re-evaluating and exploiting human resources of the acquired enterprise; because it is at the stage of assessment and During appraisal; the buyer often focuses a lot on financial, legal and property issues without anticipating issues related to “psychology” and “people”.
Related questions
Preparation phase – Before M&A
Phase of negotiation, transaction execution – Signing M&A contract
Corporate restructuring phase – Post-M&A
The entity that has the right to sell an enterprise must be the owner of the enterprise, the entity that buys the business is the organizations and individuals that have the need to buy the business and have the right to buy the business.
Entity selling business : The holder of the right to sell the business can vary depending on how the business is understood.
The business is the subject of the business transaction, not the seller of the business.
Only the business owner has the right to sell the business.
M&A can be done in many different forms. Based on corporate financial structure, M&A can be done by:
Merger and consolidation: merger is the merger of one company into another, then the merged company ceases to exist, the merging company still exists; consolidation will create a completely new company on the basis of amalgamation of old companies, then the old companies will no longer exist;
Acquisition of shares: mainly expressed by this company collecting and buying most or all of the shares of other company’s shareholders;
Acquisition of assets: is when companies negotiate to buy and sell a certain amount of assets in the target business.
In which, the most common form of M&A activities is share repurchase or asset repurchase.
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