Consulting on M&A in resort industry in Vietnam

The resort sector has long been regarded as an attractive segment and a long-term profitable investment for investors. In the context of the rapidly developing resort market, mergers and acquisitions (M&A) of businesses in this field have become an important strategy for companies to enhance their competitiveness and expand their scale. Below, Viet An Law will provide consulting on M&A in resort industry in Vietnam.

Benefits of Mergers and Acquisitions (M&A)

Consulting on M&A in the resort industry in Vietnam, mergers and acquisitions (abbreviated as M&A) involve the combination and acquisition of businesses in the market through various capital and financial transactions.

Mergers and acquisitions are a significant business strategy:

• M&A is a highly positive business strategy for both buyers and sellers. Compared to establishing a subsidiary to expand scale, suitable mergers help reduce costs and time.
• Buyers do not need to incur costs for project search and administrative procedures while also utilizing local market and labor when performing M&A.
• For sellers, merging with an equal or larger enterprise increases value and reputation. Newly established companies can also gain fame by standing on the shoulders of giants.
• Particularly for small or struggling businesses, M&A is an opportunity to turn the situation around and escape the brink of bankruptcy. However, to carry out this process, each target company and investor must carefully evaluate and review many criteria for the best results.

Consulting on Types of Mergers in the Resort Industry

Consulting on M&A in resort industry in Vietnam involves the process where one or several companies (hereinafter referred to as the merged companies) merge into another company (hereinafter referred to as the merging company) by transferring all assets, rights, obligations, and legal interests to the merging company, thereby terminating the existence of the merged companies.

Although current laws do not have specific regulations on forms of mergers, they can still be classified based on the characteristics and nature of the merger activity into six types as follows:

Mergers Based on Company Purpose

Based on the purpose of the merger activity, mergers can be divided into five forms: horizontal mergers, vertical mergers, market expansion mergers, product expansion mergers, and conglomerate mergers. Specifically:

Based on the functions of companies, mergers can be classified into three forms: horizontal mergers, vertical mergers, and conglomerate mergers.

• Horizontal mergers involve the combination of companies within the same industry that compete directly with each other, providing similar products and services in the market. The goal is to expand the market, increase business efficiency, and reduce fixed costs.
• Vertical mergers occur between companies involved in different stages of the production and market access process. The objective is to improve product quality, reduce intermediary costs, and enhance competitiveness.
• Conglomerate mergers involve the combination of companies operating in different business sectors to create a large corporation. The goal is to reduce risk through diversification and increase profits from diversified products and services.

Mergers Based on Participating Entities

Based on the participating entities, mergers can be classified into two types: domestic mergers and international mergers.

• Domestic mergers involve the combination of companies within the same country or territory.
• International mergers involve the combination of multinational companies, a common form of merger in the context of global economic integration today.

Mergers Based on Company Financial Structure

Based on the financial structure, mergers can be divided into acquisitions and consolidations.

• Acquisitions involve one company buying another company using cash or other financial instruments. In this form, no new legal entity is formed, and the acquired company ceases operations, transferring all its rights and obligations to the acquiring company.
• Consolidations involve the combination of companies to create a new legal entity. The merging companies cease operations and consolidate their assets and liabilities into the newly formed company after the merger.

Mergers Based on Company Financial Perspective

Based on the financial perspective, mergers can be classified into stock acquisitions and asset acquisitions.

• Stock acquisitions involve companies purchasing the majority or all of the shares of another company, thereby becoming the main shareholder. This form typically occurs through activities such as stock buyouts or stock swaps.
• Asset acquisitions involve a company buying a part or all of the assets of another company to transfer ownership of those assets. This can be done through asset purchases, debt acquisitions, or real estate project investments.

Consulting on Forms of Business Acquisition in the Resort Industry

Consulting on M&A in the resort industry in Vietnam, business acquisitions can be classified into various forms based on different criteria and classification bases. The forms of business acquisition can be categorized as follows:

Full Business Acquisition

The form of full business acquisition only applies to private enterprises. According to Article 192 of the Enterprise Law 2020, the characteristics of selling a private enterprise are as follows:

• Entity with the right to sell: The owner of the private enterprise.
• Entity with the right to buy: Any individual or organization that meets the conditions.
• Change of owner of the private enterprise: The buyer must carry out the procedure for changing the owner of the private enterprise according to Article 54 of Decree 01/2021/NĐ-CP without needing to carry out the business registration procedure.

Partial Business Acquisition

Partial business acquisition involves the transfer of a portion of the ownership of the business from the owner to the buyer, enabling the buyer to control the target company.

• The object of partial business acquisition is not the entire company but only a part of the company. The buyer acquires a part of the company through the transfer of controlling shares or capital contributions of the company owner. Unlike full business acquisition, the business owner does not completely give up ownership of the target company but remains a co-owner with the new owners receiving the transfer of shares or contributions.
• The forms of partial business acquisition include the following cases:
  • The owner of a one-member limited liability company transfers controlling capital to another organization or individual.
  • Members of a multi-member limited liability company transfer controlling capital to other members or other organizations or individuals.
  • Shareholders in a company transfer control rights to other shareholders, other organizations, or individuals.
  • A general partner transfers a portion of the contributed capital to another general partner or individual.

Consulting on Issues to Note Before Mergers and Acquisitions in the Resort Industry

Financial Due Diligence

• Hire law firms and financial consulting firms to directly assess and evaluate the quality and value of the assets of the company being acquired.
• Conduct a comprehensive review of all records related to debt files, cash flow, internal control systems, income and expenses, and profit figures. This will help evaluate the reliability of the reported financial data.

Commercial Due Diligence

Next, analyze and evaluate the potential of the current business environment the company is targeting. Identify customer profiles, competitors, and all assumptions made when building the business plan to review financial activities.

Legal Due Diligence

• Review all legal documents of the company, assess the legality and potential risks the company may face.
• Additionally, legal due diligence also evaluates potential dispute risks, if any.

Tax Due Diligence

Review all documents related to tax receipts and identify errors and deficits in tax declarations to minimize tax risks.

Other Related Due Diligence

Evaluate other related activities based on the specifics of each business.

Valuation and Negotiation of Purchase and Merger Value

After performing the series of due diligence tasks, the parties involved in the merger and acquisition process will value the total assets of the business and finalize a closing price for the transaction.

Consulting on Procedures for M&A in the Resort Industry

To carry out an M&A transaction, the buyer typically needs to follow these steps:

Step 1: Identify Needs and Conduct Negotiations for M&A

Determine the objectives of the business acquisition to apply the appropriate corporate laws, mechanisms, and procedures for the transaction, build the framework for the business purchase agreement, and define the obligation to inform and notify the regulatory authorities of the parties involved.

Step 2: Conduct Legal Evaluation and Due Diligence

The buyer needs to evaluate and assess the target business:

• Market evaluation and business potential;
• Legal status and enforcement;
• Request relevant documents and records (with confidentiality agreement):
  • Legal documents;
  • Fixed assets; Real estate; Human resources;
  • Business scale and organizational structure;
  • Business locations; Business systems; etc.

Step 3: Valuation and Negotiation of Purchase Price

• Valuation: The buyer bases the valuation on the aforementioned criteria to set a price suitable with the market and their financial capacity. Valuation can be performed independently by the buyer, by a third-party valuation firm, or based on the seller’s proposed price.
• Negotiation: Both parties negotiate the purchase price, purchase method, payment method, and payment timeline.

Step 4: Prepare M&A Agreement

The M&A agreement must be approved in writing by the board of members. The contents of the agreement include transfer price, total outstanding debts of the company, the party responsible for the debts, ownership of assets, employment contracts, and other signed and pending contracts. The agreement must ensure a balance of interests between the parties to guarantee a successful transaction.

Step 5: Complete Legal Procedures for M&A

The M&A procedure essentially involves registering the change of business registration details due to capital transfer. This requires registering the change of business registration details with the business registration authority.

Consulting Services for M&A in Resort Industry in Vietnam by Viet An Law

• Consulting on forms of business acquisition in the resort industry;
• Consulting on legal conditions before M&A in the resort industry;
• Consulting on M&A procedures in the resort industry;
• Providing competition restriction consulting in M&A transactions;
• Consulting on legal issues arising in business mergers and acquisitions.

Above is the consulting on M&A in the resort industry by Viet An Law. If customers have any related questions or need in-depth consultation in this field, please contact Viet An Law for the best support!