What is M&A? What are the steps to conduct a successful M&A transaction?
M&A (short for Mergers and Acquisitions) refers to the activity where two or more companies either merge (merger) or one company acquires another (acquisition).
What is the difference between a merger and an acquisition?
A merger is when two or more companies combine into a new legal entity, and the old companies cease to exist legally. All assets, rights, and obligations are transferred to the new entity.
An acquisition is when one company gains control of another by purchasing its shares or assets. The acquired company may continue to exist as a separate legal entity.
In Vietnam, M&A can be implemented in various flexible forms such as: acquiring shares or capital contributions, acquiring business assets or projects, merging under the Enterprise Law, or transferring part or all of a business. The choice of form depends on the strategy, legal structure, and business sector of the parties involved.
What values can a successful M&A bring to a business?
A well-executed M&A transaction can bring significant benefits such as quick scale and market share expansion, reduced initial investment costs, better use of existing resources, expansion into new sectors or geographic areas, and elimination of direct competition. However, if not carefully prepared, M&A may involve legal disputes, business inefficiencies, and cultural clashes.
What steps should be taken in an M&A transaction?
To ensure a smooth, legal, and effective M&A transaction, businesses should follow the six-step process below:
Step 1: Define objectives and identify a target – Determine the strategic goals such as market expansion, technology acquisition, or revenue growth, and evaluate target businesses based on their industry, financials, and growth potential.
Step 2: Legal and financial due diligence – Assess the target company’s legal status (licenses, disputes, contracts, labor) and financials (statements, debts, cash flow, taxes) to identify risks and determine true value.
Step 3: Negotiate and execute transaction documents – Negotiate terms such as price, payment method, post-closing obligations, and dispute resolution. Essential documents include a memorandum of understanding (MoU), share/asset transfer agreement, and representations and warranties.
Step 4: Obtain regulatory approvals (if required) – Some transactions may require investment approval from the Department of Planning and Investment or Industrial Zones Authority, antitrust filing with the National Competition Commission, or approval for transferring capital in conditional business sectors.
Step 5: Execute the transaction and make payment – After negotiations, parties proceed with share/asset transfer and payment (typically via bank transfer, possibly in multiple tranches).
Step 6: Complete post-transaction legal procedures – Make necessary updates to business registration, investment certificates, tax authorities, banks, and insurance agencies; and transfer contracts, assets, HR, and offices.
Key legal notes: The transfer must be approved by the company’s Members’ Council or General Meeting of Shareholders as per its charter; foreign investor involvement must meet investment and ownership conditions; economic concentration must be notified if thresholds are met; and applicable taxes (corporate income tax, personal income tax, contractor tax) must be considered.
If enterprises find the full M&A process complicated, it is recommended to consult with reputable law firms. With extensive experience in successful M&A transactions, DEDICA Law Firm is a trusted partner for your high-value deals.
In conclusion, M&A is not just a financial transaction but a long-term development strategy. For success, businesses need clear planning, thorough due diligence, and full legal compliance. DEDICA Law Firm is ready to support you at every stage – from planning and negotiation to legal completion – ensuring your M&A deal is safe, efficient, and compliant.
Contact DEDICA Law Firm today for expert legal advice!
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