WHAT IS M&A? LEGAL REGULATIONS GOVERNING M&A ACTIVITIES - OTIS LAWYERS

M&A stands for "Mergers and Acquisitions." It is a crucial term in the investment and business sectors. Many people have heard about successful and famous M&A deals, not only globally but also in Vietnam. However, they may not fully understand this concept. In the following article, OTIS LAWYERS will help readers understand what M&A is and the legal regulations governing M&A activities in Vietnam.

What is M&A?

M&A is an abbreviation for Mergers and Acquisitions. M&A is the action of gaining control over a business through buying and selling, merging products, services, or buying/merging two operating businesses in the market.

Although M&A is commonly used, the two actions - Mergers and Acquisitions - differ:

Mergers (M): Independent companies merge to become a single entity. These entities may be competitors or share suppliers and customers.

Acquisitions (A): A company purchases part or all of the shares of another company, then may acquire full control over the acquired company. Acquisition activities are usually carried out by large-scale companies acquiring smaller businesses to gain control.

The results of both M&A actions are similar, but the relationships between the two entities are different, determining whether it's a "Merger" or an "Acquisition."

Benefits and Limitations of M&A Deals

M&A activities bring various advantages to businesses, but they also have some limitations:

Benefits

• M&A activities increase the scale of the business, improving economic efficiency by purchasing raw materials in bulk and at lower costs, thereby optimizing production and business efficiency.
• M&A helps businesses increase market share by consolidating resources and target customer groups.
• It enhances distribution capabilities, expands the customer base in multiple areas, and improves the distribution channels.
• M&A mergers and acquisitions concentrate high-quality human resources for the new company, increasing opportunities for development and expansion.
• It optimizes the financial resources of the company. The combined finances and profits of two companies can be greater together than individually.

Limitations

• Acquiring a business involves significant costs to maintain control over it.
• Legal issues related to M&A activities are complex, requiring high legal costs for legal processing.
• Focusing on acquiring another company may lead your company to overlook many trading opportunities in the market.
• Negative conflicts arising from the merger of two companies can create difficulties in management, operations, and reduce stock prices in the market.

Legal Regulations Governing M&A Activities

M&A is a familiar business activity in the global economy and also in Vietnam. M&A forms must comply with legal regulations to ensure transparency and fairness in the market.

Here are the legal regulations governing M&A activities that businesses need to comply with:

• M&A is conducted according to the provisions of the Enterprise Law, which defines the concept and procedures for mergers, acquisitions, applicable to each company model.
• M&A is carried out according to the provisions of the Investment Law of 2020. M&A activities are considered a form of direct investment. Companies can acquire a part or all of the target company.
• M&A is conducted according to the Competition Law. Mergers and acquisitions are a form of economic concentration. M&A activities are prohibited if they significantly affect and restrict the Vietnamese economic market.
• M&A is conducted according to the Securities Law. The merger or acquisition of securities companies, fund management companies must be approved by the State Securities Commission.
• M&A is carried out according to the Law on Credit Institutions. The merger, division, or acquisition of credit institutions must be approved by the State Bank.
• In addition, M&A activities need to comply with commitments in agreements and organizations such as GATT/GATS/WTO, ASEAN, agreements encouraging and protecting investments, international commitments to bilateral investment liberalization related to M&A activities.

Companies in each sector need to assess and consider the regulations in various laws, commitments, and economic agreements to avoid regrettable violations.

Common Forms of M&A Nowadays

To understand M&A strategies, it's essential to understand the common forms of M&A today:

Vertical M&A

The merging of two companies with different production stages but the same value chain. Vertical M&A ensures control and improves the quality of goods, product outputs.

Horizontal M&A

The merging of directly competing companies. These companies typically have the same products, trading forms, customer segments.

Conglomerate M&A

The acquisition or merging to form large corporations. These mergers occur between companies serving the same customer group in specific sectors but do not offer the same products. These products may complement each other to serve customers, increase service quality, and business credibility.

Procedure for Implementing M&A According to Vietnamese Law

Step 1: Develop a Specific M&A Strategy: Establish clear goals and a roadmap for achieving those goals.

Step 2: Identify Target Companies: Criteria for selecting suitable companies for acquisition or merger to maximize profits.

Step 3: Identify Potential Companies: From the list of potential target companies, identify the most suitable ones based on M&A goals.

Step 4: Contact Potential Companies: Understand the desires and needs of the other party.

Step 5: Gather Information: Request financial reports, production data, debt status, customer data, etc., related to the target company.

Step 6: Negotiation: Negotiate and discuss detailed terms between the two parties.

Step 7: Assessment of Target Company's Value: Investigate and analyze all aspects of the target company.

Step 8: Agreement and Contract Signing: Sign a purchase agreement with agreed-upon terms.

Step 9: Financial Settlement: According to the agreement, proceed with financial transactions.

Step 10: Joint Management: Work together with the management teams of the target company and the acquiring company, making necessary adjustments. Finally, the M&A process can be concluded.

Understanding M&A concepts, legal regulations, and implementation procedures is crucial for businesses engaging in M&A activities effectively and legally.

For any questions or comments, please contact:

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