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Mergers and Acquisitions in Vietnam

The Vietnamese government has simplified the mergers and acquisitions in Vietnam (M&A) process to attract investments in emerging economic sectors. For foreign investors who find it challenging to start a business in Vietnam, M&A provides a strategic alternative to overcome various hurdles.

M&A allows investors to tap into existing consumer bases, strategic locations, and established distribution networks. This local insight is crucial for navigating Vietnam’s dynamic and rapidly evolving investment landscape.

The M&A in Vietnam approach is gaining traction, with deals totaling USD 9.9 billion in 2018, according to the Vietnam Association of Foreign Invested Enterprises. While this was a notable figure, it was slightly less than the M&A activity in 2017. However, an increase in M&A transactions, particularly in the retail sector, was anticipated in 2019.

Notable transactions include VinCommerce, a subsidiary of Vingroup, acquiring the convenience store chain Shop&Go, and South Korea’s GS25 acquiring Zakka Mart.

Such deals are expected to contribute to a projected 14% growth in M&A value this year. The General Statistics Office (GSO) estimates that total M&A revenue could reach USD 484 billion by 2025, expanding beyond retail to include real estate, renewable energy, and technology sectors.

To navigate the M&A landscape in Vietnam successfully, it’s essential to understand the legal framework and the specific procedures and limitations involved in these transactions.

What are in Vietnam?

In Vietnam, mergers and acquisitions (M&A) are governed by various laws, including the Law on Enterprises and the Competition Law. These regulations establish a legal framework to ensure transparency and fairness in the market. The M&A process involves compliance with securities law, enterprise law, and competition law, among others as follow:

The Law on Enterprise No. 68-2014-QH13 

Article 18 outlines the rights of individuals and companies to start a business, buy shares, and provide capital. However, there are some restrictions on who can participate, such as government officials, minors, and those prosecuted for criminal acts.

Article 195 covers the rules and limitations for mergers. If there’s a conflict with the Competition Law, the company’s legal representative must resolve it with the competition authority. After completing the merger, the new company must notify the national enterprise registration database.

The Law on Investment No. 67-2014-QH13 

Article 25 defines the rights of foreign investors to contribute capital and purchase shares.

Article 26 details the process for contributing capital and buying shares. Investors must submit a registration application to the Service of Planning and Investment for approval.

Law on Securities 

This law regulates the buying of shares in public companies, including public tender offers. The authorities responsible for enforcing this law are the State Securities Commission (SSC), Vietnam Securities Depository, and the Ministry of Planning and Investment (MPI).

Law on Competition 

Vietnam’s new Competition Law, effective from July 2019, broadens the circumstances under which a merger needs approval. These include total assets, revenue, transaction value, or market share of the parties involved. It sets thresholds like having assets and revenue of at least $43 million. The law also requires a 30-day preliminary review to decide if the transaction can proceed or needs a full merger evaluation.

Conditions for Business Mergers

Under Clause 1, Article 201 of The Law on Enterprise No. 68-2014-QH13, when businesses merge, one or more companies (referred to as the merging companies) can join another company (referred to as the receiving company). This process involves transferring all assets, permissions, legal responsibilities, and benefits to the receiving company, while the merging company ceases to exist.

If a merging company controls 30% to 50% of the market, its legal representative must inform the competition authorities before merging. Companies must adhere to Competition Law regulations during mergers, resulting in the dissolution of the merging company.

According to Article 29 of Law on Competition, Mergers where the merging company has over 50% market share are prohibited, except in specific situations like potential dissolution, bankruptcy, boosting exports, aiding socio-economic growth, or advancing technology.

An example of a notable merger is Grab’s acquisition of Uber’s market share in Vietnam. Despite both being foreign-owned, they dominated the local high-tech taxi market. Eventually, Uber retained some shares in Grab’s parent company and exited Vietnam. This merger wasn’t fully opposed by authorities due to ambiguities in defining the technology taxi sector against traditional taxis. At the time, Grab and Uber together held over 50% of the tech taxi market. Given their overseas parent companies, Uber’s exit was seen as within their rights, showcasing a new type of international business merger.

Mergers and Acquisitions Implementation Process

The company merger process is outlined as follows:

Step 1: The companies involved prepare the merger contract and draft the charter of the receiving company.

Before the merger, the involved companies must prepare a merger contract. This contract should include key details such as the names and addresses of the headquarters of both the receiving and merging companies, the procedures and conditions of the merger, the labor utilization plan, the methods, procedures, timeframe, and conditions for asset transfer, and the conversion of capital contributions, shares, and bonds from the merging company to the receiving company. It should also state the timeline for executing the merger.

The merger application and business registration process for the receiving company must comply with Article 201 of The Law on Enterprise No. 68-2014-QH13 and include copies of the following documents:

“1. The merger contract.

2. Resolutions and minutes approving the merger contract from the receiving companies.

3. Resolutions and minutes approving the merger contract from the merging companies (except when the receiving company owns over 65% of the merging company’s capital or shares with voting rights).

4. Business registration certificates or equivalent documents of both the merging and receiving companies.”

Step 2: The members, owners, or shareholders of the companies approve the merger contract and the charter of the receiving company, and then proceed with the business registration of the receiving company. Within 15 days of approval, the merger contract must be communicated to all creditors and employees.

Step 3: After completing the business registration, the merging company will cease operations, and the receiving company will inherit all legal rights and interests, as well as assume responsibility for the unpaid debts, labor contracts, and other property obligations of the merging company.

Step 4: The merging company must terminate its tax code with the tax authority. Meanwhile, the receiving company retains its tax code and only needs to update its tax registration information if the merger affects its tax details.

Types of company mergers

Horizontal Merger

A horizontal merger happens when two companies in the same industry combine.

For instance: if one grocery store chain buys another grocery store chain in the same city. This type of merger is commonly used to increase market share, strengthen market presence, and reduce competition. However, if the merged company controls more than 40% of the market, it must be reported and approved by regulatory authorities.

Vertical Merger

A vertical merger occurs when two companies in the same supply chain but at different production stages merge. This type of merger aims to control the production process and improve product quality. It can also help companies manage competitors’ output and lower production costs.

• Example 1: A car manufacturer might buy a tire supplier to ensure a steady supply of tires for its cars.
• Example 2: A food producer acquiring a packaging company to guarantee a reliable source of packaging materials.

Mergers and Acquisitions (M&A) Combination

This form of M&A is about creating bigger businesses by combining companies that serve the same customer base but offer different products. These products can complement each other, enhancing customer service, and boosting business reputation.

This type of merger offers several advantages, including product diversification, profit increase, risk reduction, and access to a broader customer base.

Example: A beverage company merging with a snack food company to offer a wider range of products to their customers.

For foreign investors considering mergers in Vietnam, a horizontal merger can increase market share and reduce competition, while a vertical merger improves production efficiency and product quality. Alternatively, a combination in M&A offers product diversification and access to a broader customer base, enhancing overall business growth.

Benefits when M&A in Vietnam

Benefits of Mergers and Acquisitions in Vietnam:

• Diversification of Products: Mergers and acquisitions (M&A) help businesses expand their product lines, allowing them to offer a wider range of products to customers. This diversification can attract new customers and retain existing ones by meeting more of their needs.
• Increased Profits: By combining resources and capabilities, companies can achieve higher efficiency and productivity, leading to increased profitability. The economies of scale achieved through M&A can result in cost savings and better financial performance.
• Reduced Business Risks: M&A activities can help companies mitigate risks by spreading them across a larger and more diverse business entity. This risk reduction is particularly beneficial in volatile markets where having a diverse portfolio can cushion against industry-specific downturns.
• Access to New Technologies and Expertise: Through M&A, companies can acquire new technologies and expertise that they may not have had access to before. This access can drive innovation and improve the overall quality of products and services.
• Market Expansion: M&A can enable companies to enter new markets and expand their geographic presence. This market expansion can lead to increased market share and enhanced competitive positioning.
• Talent Acquisition: Combining companies can bring together talented individuals from different organizations, fostering a more dynamic and skilled workforce. This talent pool can drive growth and innovation within the newly formed entity 

Restrictions when M&A in Vietnam

The limitations of mergers and acquisitions (M&A) in Vietnam include regulatory hurdles, cultural integration challenges, and potential market monopoly issues. Regulatory approval can be a lengthy process, and differences in corporate culture can hinder smooth integration. Additionally, M&As that lead to a dominant market position may face strict scrutiny from competition authorities, limiting the potential benefits

M&A consulting lawyer in Vietnam

Apluslaw is a prominent M&A consulting firm based in Vietnam, offering specialized legal services for mergers and acquisitions. Our dedicated team of legal professionals brings extensive experience and in-depth knowledge to the table, providing clients with strategic guidance throughout the entire M&A process.

We assist in various aspects of M&A transactions, including:

• Due Diligence: Conducting thorough investigations to assess the risks and benefits associated with potential mergers or acquisitions.
• Contract Negotiation: Drafting and negotiating complex agreements to ensure favorable terms and compliance with Vietnamese legal requirements.
• Regulatory Approval: Navigating the regulatory landscape to obtain necessary approvals from Vietnamese authorities and ensure compliance with local laws and regulations.
• Post-Merger Integration: Offering support in integrating the merged entities to achieve operational synergies and maximize the benefits of the transaction.

At Apluslaw, we understand the intricacies of the Vietnamese market and are committed to delivering tailored solutions that align with our clients’ strategic goals. Our aim is to facilitate smooth and successful M&A transactions, minimizing risks and maximizing value for our clients.

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With a team of experienced, talented, enthusiastic and dedicated lawyers, A+ Law is proud to be the leading unit in consulting and resolving tax issues for foreign investors including the following services:

• Consulting on determining tax obligations: tax amount payable, tax exemption, tax reduction, tax deduction, tax calculation price, tax rate.
• Consulting on procedures: registration, declaration, tax payment, tax settlement, inspection and handling of violations, tax complaints.
• Consulting on accounting regimes: accounting standards, invoices, documents.
• Consulting on cooperation and business plans: forecasting arising tax obligations
• Authorized representative to carry out tax procedures.

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Mergers and acquisitions (M&A) in Vietnam represent a dynamic and evolving segment of the business landscape. These transactions provide opportunities for companies to expand market share, enhance operational efficiencies, and achieve strategic growth. However, navigating the regulatory environment and managing post-merger integration can pose significant challenges. Successful M&A deals require careful planning, thorough due diligence, and compliance with local legal requirements. As the Vietnamese market continues to grow, understanding these complexities is crucial for achieving favorable outcomes in M&A activities. If you still have any questions related to this issue, please contact lawyer A+ via email: contact@apluslaw.vn or via phone number: 0899511010 for support and advice.