M&A service in Vietnam

Mergers and acquisitions (M&A) are transactions in which the ownership of companies, other business organizations, or their operating units is transferred or consolidated with other entities. Acquisition is the purchase of one business or company by another company or other business entities, and the acquiring company becomes the new owner of the target company. The acquired company no longer exists, and the acquiring company will take over all the acquired company’s business. In essence, the buyer’s motivation in most cases of acquisitions is to increase profits, expand business operations, and increase. In legal procedures, mergers and acquisitions are procedures to transfer shares of the old shareholders in a joint-stock company or purchase the contributed capital of the old owner in the limited company to conduct business activities in a new direction. In the following article, Viet An Law will provide detailed instructions about the M&A service in Vietnam.

What is M&A?

Merger and acquisition (M&A) is the process by which the business owner transfers all of its capital or its capital contribution to the transferee. After the transaction, the transferee will take ownership of the business and have control over the business operations of the acquired business.

Currently, there are 2 forms of business mergers and acquisitions :

• Partial M&A: The transfer of ownership of a part of a business from the business owner to the buyer so that the buyer has control over the business objectives.
• Entire M&A: The purchase and sale of an entire business constitutes a transfer of ownership of the entire business from the business owner to the buyer.

Steps to merging and acquiring a business

Phase 1: Identify goals and share initial information

Step 1: Identify trading needs and goals

Step 2: Share initial information and screening

After screening, the Buyer/Buyer Representative requests the Seller/Seller Representative to provide introductory information about the target company to the investor. Information exchange between the investor and the Seller/Seller Representative is conducted based on feedback on the introductory information about the target company to clarify necessary information.

Phase 2: Letter of Interest (LOI) & Qualifications Verification

Step 1: Letter of Intent (LOI) and initial qualification verification

The partner/investor sends the LOI with the Company profile, and the Seller/Seller Representative receives the LOI. The Seller/Seller Representative responds to the LOI with a non-disclosure agreement (NDA) between the parties.

Step 2: The Second time to share information

The Seller/Seller’s Representative continues to share information of interest to investors (2nd information sharing)

Step 3: Legal Due Diligence

Meeting between investor representative and target company representative (or survey of current status, assessment of target company as agreed by both parties). The Buyer conducts a comprehensive legal due diligence, including:

• Due diligence of the market and business development potential;
• Legal status of operation and execution;
• Require relevant documents: legal documents (Enterprise Registration Certificate, Investment Certificate, Company Charter, etc.), accounting documents (financial statements, accounting books, etc.), labor-insurance documents, charter capital, fixed assets, trademarks and intellectual property rights, customers and partners, ESG assessment documents, and existing disputes.

Phase 3: Signing of Memorandum of Understanding (MOU) and Basic Terms (TermSheet), Proof of Financial Capacity/ Deposit

Step 1: Sign a Memorandum of Understanding (MOU) and demonstrate financial capacity

The parties proceed to sign the MOU/Term sheet. The Seller/Seller Representative requests the Buyer/Buyer Representative to prove financial capacity or make a deposit if the parties agree to proceed with the next steps of the M&A transaction.

Step 2: Pricing and negotiating the purchase price

Valuation: The valuation can be performed by the buyer independently or by a third party with a valuation function.

Negotiation: The two parties negotiate the payment terms.

Step 3: Prepare the business sale and purchase contract

The contract for the sale of a business must be approved in writing by the board of members, including the transfer price, the total outstanding debts of the business, the buyer or seller being responsible for the debts, property ownership, labor contracts, and other contracts signed and not yet completed. The contract must ensure a balance of interests between the parties.

Phase 4: Complete the transaction

Step 1: Complete the procedure for changing the business registration

Procedures for buying and selling businesses, or merging/consolidating companies, are essentially procedures for registering changes to business registration information regarding capital due to the transfer of capital contributions. Carry out procedures for typical types of businesses, such as joint stock companies, at the Department of Finance of the province/city where the business is headquartered.

Step 2: Complete the transaction and transfer the business

After completing the above steps, the buyer makes the payment, and the seller transfers ownership and management of the business to complete the transaction.

After liquidating the transfer contract, the buyer needs to resolve issues regarding personnel, management structure, management policies, remaining financial and legal issues, and minimize differences in corporate culture.

This process not only saves time for both the seller and the buyer but also contributes to improving the quality and seriousness of M&A deals.

Some notes before buying and selling a business

Before buying or selling a business, you need to pay attention to the following issues:

• Financial statements: It is important to review the financial statements and tax returns for the previous 3-5 years.
• Human Resources: Key employees play a vital role in the success of a business. It is necessary to survey the staff to assess the quality and shape the future of the business after the acquisition. The professional qualifications, performance, and development of the employees all contribute to the success of the business.
• Customers: The primary purpose of an acquisition is to take advantage of existing conditions to grow in a new market. Understanding the customer base, relationships, and profitability of a business before the acquisition helps build a solid foundation for developing and maintaining a customer base after the transaction.
• Brand: Investors often prioritize choosing businesses with a famous trademark, helping to save time and costs in building a brand. However, brand valuation must be done reasonably and in accordance with the investor’s budget.
• Legal status of the enterprise.
• There should be support from lawyers, accountants, auditors, and business buying and selling consultants to ensure the process is legal and maximizes benefits.

The procedure for M&A with a private enterprise

According to the provisions of the Law on Enterprise, the owner of a private enterprise has the right to sell their entire business to others.

A dossier for acquiring a private enterprise

• Notice of change of ownership of a private business signed by the seller and the buyer;
• A valid copy of one of the buyer’s identity papers;
• Enterprise sale contract and documents proving completion of the transfer of the private enterprise;
• A valid copy of an ID card, passport, or other personal identification of the private enterprise owner;
• The written certification of the legal capital for the enterprise conducting the business lines for which legal capital is required by law;
• Valid copies of practice certificates of one or several individuals as prescribed for private enterprises conducting business lines for which practice certificates are required by law.

A process of acquiring a private enterprise

Proceed to acquire an enterprise with a buyer

• Drafting a purchase and sale of business agreement;
• Define buyer of an enterprise must be the person who has the right to establish, contribute capital to the establishment, purchase shares and manage an enterprise under the Law on Enterprises, and this does not apply in the case of not having the right to establish and manage an enterprise in Vietnam by this law.
• Documents proving the purchase and sale of a private enterprise have been completed (receipt of purchase and sale of a private enterprise, minutes of liquidation of the sale and purchase of a private enterprise contract, and register enterprise for the buyer).

Register a new business for buyers.

• Within 15 days from the date of transferring the enterprise to the buyer, the business owner must notify the business registration office in writing;
• Content of notice of change ownership of a private enterprise: Name and head office of the enterprise; name and address of the buyer; total outstanding debt of the enterprise; name, address, amount of the debt and due date of payment for each creditor; Labor contracts and other contracts signed that have not been completed yet and the way contracts will be resolved.

A process of acquiring a joint-stock company

The acquisition of a joint stock company is performed by transferring the company’s shares.

• Relating parties sign and perform the share purchase agreement;
• Proceed to make a record to confirm the completion of the share transfer procedure.
• Organize the General Meeting of Shareholders to approve the share transfer;
• Modify, supplement information in the Register of Shareholders of the company;
• Proceed to register to change shareholders according to regulations;
• Declare and pay personal income tax for stock transfer procedures.

A process of acquiring a limited liability company

The acquisition of a limited liability company is conducted through the transfer of capital contributions to the company.

• Such capital must be offered to the remaining members in proportion to their stake in the company under the same terms;
• Only transfer to non-members if the remaining members of the company do not purchase or do not fully purchase within 30 days from the date of offering.
• If a list of members is changed due to capital transfer within 10 days from the date of the decision to change, the Company sends a notice to the business registration office where the company has registered its business.
• Pay and declare capital transfer income tax for capital transfer activities.

Viet An Law is always ready to exchange and support clients with the necessary information relating to business activities. Please contact Viet An Law Firm for specific advice.

M&A service in Vietnam of Viet An Law

• Consulting on conditions, processes, and procedures for buying and selling businesses;
• Consulting and assessing the legality of the target company;
• Consulting, drafting, and representing in negotiating business purchase and sale contracts with related parties;
• Represent the business in carrying out legal procedures, taxes, insurance related to business M&A activities.
• Regular consulting for businesses after M&A.

Above is all the information related to the M&A service in Vietnam of Viet An Law. Clients who need legal advice, please contact us for the best support!