Overview of the general process of M&A transactions in Vietnam

General process of Mergers & Acquisitions (M&A) transaction

Merger and acquisition (“M&A“) activities are operations to gain control of a business through the form of merging or acquiring a part or all of another business. The purpose of an M&A for the buyer, in addition to owning shares of the target company, is also to participate and decide on important issues that affect business operations and management of the target company.

In this article, BLawyers Vietnam presents the general process of an M&A transaction with three main stages as follows:

1. Pre-M&A stage: Preparation for the transaction

In the pre-M&A stage, the activities of searching, approaching, and evaluating the target company are carried out. The acquirer performs the following two main steps:

(i) Searching and approaching the target object

At this step, the acquirer will rely on criteria to select potential and suitable target companies for the M&A transaction. The acquirer considers the target company based on the following factors:

  • The industry of the target company must be in fields suitable for the development orientation of the acquirer;
  • Financial statements and tax and financial obligation documents of the target company, in order to assess the current financial status of the target company;
  • Properties including tangible properties and intangible properties;
  • Workforce;
  • Data of customers and partners;
  • Land, business locations, infrastructure, and existing physical facilities that are available and can be utilized to reduce initial investment costs; and
  • Other factors.

(ii) Initial valuation of the target company

The next step is to determine the value of the business when participating in an M&A transaction. At this step, the acquirer will proceed to hire professional legal and financial advisory firms to evaluate the target object as a whole, before making a decision on whether to acquire it.

The acquirer will request the target company to provide information on the current financial situation such as financial parameters, current assets, debts, current human resources, and current customers so that they can analyze further to help assess the situation correctly to make the right choice. The parties may sign a confidentiality agreement before the acquirer is granted access to the target company’s data and information.

Depending on the target object and the needs of the acquirer, the acquirer organizes the evaluation of the following reports:

  • Financial Due Diligence report: focuses on checking compliance with accounting standards, capital transfer, provision, loans from organizations and individuals, the stability of cash flow, depreciation of assets and the ability to recover accounts receivable, tax, etc.
  • Legal Due Diligence report: focuses on evaluating the entire and detailed legal issues related to the legal personality of the target company, the situation of capital contribution and the status of shareholders/owners, the legal rights and obligations of the target company, assets, labor, disputes, intellectual properties, commercial contracts, etc.
  • ESG report: Assessing and evaluating environmental, social, and governance risks and opportunities. This report is set against the backdrop of increasing ESG requirements that have a direct impact on attracting foreign investment.

These detailed due diligence reports will help the acquirer understand the risks that the acquirer must bear when participating in the target company and thereby assess the value of the target company.

2. Negotiation, M&A transaction execution stage

(i) Negotiation on price and terms of the transaction

Based on the evaluation results, the acquirer will determine whether the goal of the transaction is to acquire the entire or a portion of the target company, and based on that decision, use it as a basis for negotiating the content of the M&A agreement.

In this stage, the parties must determine the purchase price of the target company. To determine the purchase price, the parties involved in the M&A transaction may hire an independent valuation firm to determine the value of the business. After determining the purchase price, the parties proceed to negotiate other terms of the M&A agreement.

The M&A agreement is a legal document that stipulates the rights and obligations of the parties involved in the transaction, and records the form, value, and content of an M&A transaction. The M&A agreement will help to ensure the rights of the parties when participating in the M&A transaction. Therefore, the parties need to draft the M&A agreement carefully, fully, and in accordance with the law.

(ii) Implementing legal procedures to record an M&A agreement

The acquisition of the business of the acquirer will only be officially completed when all legal procedures related to the transfer from the seller to the acquirer have been completed, especially for the ownership of shares/equity or assets, as well as rights that must be registered with the competent authority.

3. Post-M&A stage

After the completion of the M&A transaction, the acquirer needs to focus on resolving issues related to personnel, company management policies, accounting issues, conflicts over corporate culture, and financial legal issues to ensure the operation of the enterprise after the M&A is effective.

Although financial, debt, and legal issues in M&A have been carefully assessed, problems can still arise after the M&A transaction is completed.

In summary, an M&A transaction is a complex process that requires careful preparation and close coordination between the parties involved. Therefore, the parties involved need to carefully understand the M&A implementation process to ensure that the transaction is successful and achieves the set goals.

The above is not official advice from BLawyers Vietnam. If you have any questions or suggestions about the above, please contact us at consult@blawyersvn.com. We would love to hear from you.

Date: 16 Jan 2024

Writer: Linh Nguyen

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