Importants Matters to Consider in M&A Contract

Before carrying out merger or acquisition (M&A), enterprises need to research carefully regulations of law to protect their rights and interests. Regulations on each aspect of M&A activities are referred to in various legal documents such as Law on Enterprises, Commercial Law, Competition law, Law on Investment, Civil Code … When carrying out M&A, enterprises should also pay attention to some basic terms in the contract. The M&A lawyers should be referred to for effective process and minimizing risks of the transaction. Definition, this term is used to define words, phrase used many times or unified understanding between the parties or abbreviations.

Entity, the parties should specify the parties’ information such as: corporate names, address of headquarter, name, position of legal representative, identity card number (or passport number) of legal representative, corporate tax code, … according to enterprise registration certificate or investment registration certificate. When entering into contract, the parties can contact and ask partners to provide copies of enterprise registration certificate or investment registration certificate to ensure correct information and authority to sign.

M&A conditions in M&A contract. Conditions for M&A are conditions agreed by two parties to carry out M&A. M&A is carried out only when these conditions have been met. These conditions include conditions agreed by General Meeting of Shareholders, Board of Directors, the company owner; Conditions of announcing company status, financial obligations, business activities …, announcing to relevant third parties; Conditions of business activities, company activities; Conditions of people, personnel.

Declaration and commitment of both parties on the status of enterprises, contract need to have term of affirmation and commitment of seller about corporate debt. This will limit disputes and risks for the buyer.

Determination of assets and financial obligations in M&A contract. This determination includes time of determination, entity, related costs, methods for disposal of assets.

Transfer of rights and obligations in M&A contract. The time of transfer, the time of enjoying rights and generating obligations, the conditions for transfer, the mode for transfer, the transfer procedures and the papers, documents needed to transfer, includes: transfer of ownership rights, economic rights; transfer of effective contract; Arising benefits enjoyed by merged company; Tax obligations, insurance obligations, wages for employees and debt repayment obligations.

Methods and time of payment, parties need to specify methods for payment and specific duration of payment with amount of each installment payment. In order to ensure safety, the parties should request a competent reputable organization to provide intermediary financial services. This third party will stand out to ensure the parties of the contract to comply correctly and legally with the agreement.

Conditions, time limit, procedure of M&A, the buyer needs to specify attached conditions and specific time in process of M&A to let the seller perform obligations of transfer of asset, stocks, shares under regulations of contract. Procedures include procedures under law and other procedures under company’s charter.

Legal rights and obligations, parties need to detail obligations in previous period, during and after contract performance as well as the specific time of termination.

Time limit of contract performance, parties need to specify the time of taking effect and termination, or arising grounds which result in the termination of the contract.

Term of dispute resolution, dispute may be brought to the competent Court or Commercial Arbitration for settlement.

Term of fines against violations is also necessary to pay attention. This is a type of sanctions made by the parties but this must be suitable for the regulations of law.

Force majeure clause. Force majeure is a legal event arising out of subjective will of the parties. These cases make one or both parties unable to perform or perform improperly their obligations. When breaching the contract due to a force majeure event, the law would not force to take responsibility for the asset.

Besides, merger contract should have term of transfer of stock, term of employee utilization plan after merger and acquisition.

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Please click here to learn more about Corporate and M&A Legal Service or contact our lawyers in Vietnam for advice. Send us request via email at ant@antlawyers.vn or call us at +84 28 730 86 529

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M&A Wave from Korea to Vietnam Banking Sector

The success of many Korean banks in Vietnam makes Korean financial investors pay special attention to Vietnam banking sector. Investment methods that are most interested by investors are mergers and acquisitions (M&A).

According to information from the National Financial Supervisory Commission, Hana Financial Group (KEB Hana Bank) is preparing to buy shares of BIDV Bank.

Thus, the wave of investment from Korea to Vietnam financial and banking sectors have not stopped. Since the beginning of 2018, two Korean investors have successfully acquired two financial companies in Vietnam: Shinhan Card acquired Prudential Finance and Lotter Card acquired Techcombank Finance. Including KEB Hana, in 2018, Vietnam financial markets will welcome at least three new members from Korea.

According to the Director of the Korea Financial Supervisory Commission, Korean banks and finance companies are strongly attracted to the Vietnamese market.

In fact, even Korean financial investors operating in Vietnam are very optimistic about the potential development of the market. According to Director of Woori Bank, the Government of Vietnam is making great efforts in bank restructuring phase II, applying Basel II to strengthen the banking environment and attract more foreign investors. This will open more opportunities for investors.

Talking about the way to invest in Vietnam financial market, according to experts, in the coming time, the granting of licenses to establish banks in Vietnam will be more difficult, therefore, Korean businesses want to invest in the Vietnam banking sector should pay attention to the form of M&A.

Vietnam’s financial market is very potential, but foreign investor’s ownership rate is restricted (not to exceed 20%). However, the Government has allowed investors to buy 100% capital of weak banks.

Currently, digital finance is booming in Korea. Many banks like K-Bank, Kakao Bank allow customers to do transactions without human help. Shinhan, Woori and other Korean financial investors also want to quickly cover the Vietnamese market with the support of technology.

For example, Shinhan Card has just acquired Prudential Finance, but soon expressed its ambition to break the consumer lending market. According to Director of Shinhan Card, their annual sales amounted to 9 trillion won (about 180 trillion VND).

On the side of investors, according to CEO of Shinhan Bank Vietnam – one of the most successful foreign banks in Vietnam, the retail sector in Vietnam has many opportunities, keeping up fast with digital. Therefore, Shinhan Bank’s strategy is to focus on retail development in parallel with digital investment. Korean banks have a lot of experience in digital banking, plus the cultural similarity is a big advantage when investing in Vietnam.

With the technological strength, plus the strong wave of investment, Korean financial investors are really becoming a serious competitor in the financial market of Vietnam.

ANT Consulting assists clients with Market Entry, Legal Advice, Tax Advice and Outsourcing Services in Vietnam.

We are located in Hanoi, Da Nang and Ho Chi Minh City.

Talk to our consultants at +84 28 730 86 529 or email us ant@antconsult.vn

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M&A Due Diligence and Execution in Vietnam

 Merger and Acquisition (M&A) activities in Vietnam have been rapidly increasing over the the years in value and number of transactions when Vietnam’s opening policies to attract foreign investments loosen up.  The M&A due diligence and execution are therefore important steps to ensure a successful transaction.

For foreign investors wishing to take advantage with a certain level of risks in Vietnam where the cost of labour are cheap, mid-income populations are growing, and the need of capital are high, it is imporatant to find the right target companies to invest.  Challenges might arise when approaching the right local companies, locating the right decision makers within the local companies, encountering differences in languages and cultures.

It is imporant that the local consultants with the understanding of the business and legal environment in Vietnam where the local companies are incorporated could be involved at an initial stage to monitor and minimize the risks, improve the effectiveness of the M&A process in Vietnam.

The Vietnam consulting company could also provide corporate intelligence and insights of the Vietnam targeted companies to have an overall evaluation of the compliance of the Vietnam companies, possible risks involved and growth potential.  Financial forensic services might also be needed before other further steps.  Then, the following will need to be considered when undertaking the M&A in Vietnam.

Due diligence

M&A due diligence in Vietnam is a vital step because it determines whether the M&A will succeed or not. There are some aspects that must be carefully considered:

• Financial reports

Review all the financial reports of the Vietnam targeted companies within 3 to 5 years to assess the current and future financial situation. These data needs to be audited by a reputable independent auditing company. Evaluating financial situation targets on many aspects such as the reasonable connection between the financial statements, operating and sales margin of the business in relation to the average in that industry.  These data allow valuation real value of the targetbusiness.

• The cash flow

Checking the dates on invoices showing that whether targeted businesses have paid promptly or not. Term of payment may vary from industry to industry, but generally 30 to 60 days. If the money order is paid after the billing date period of 90 days or more, it means that the business owner may be struggling with cash flow. Finding out that if the clients’ inability to pay bills or not is very important.

• The staff

Determining the importance of staff for the success of the businessconsidering work habits of employees, working time of key employees; ability to remain working after a change of the owner occurs; the incentives necessary to keep key employees; ability to easily replace key employees; the relationship of key employees with the company’s customers.

• The customers

This is the most important assets of the Vietnam targeted company. Make sure that clients are as the other tangible assets of the business. Evaluating customers on some primary aspects: the relationship with the current owner of the business, customer history with business relations and the contribution of each customer to the profits of the company; assessing that customer will leave or stay when the business having new owners; customer services and dispute of the company, the relationship of the former owner of the business with the community or the industry.

• Business location

This is especially important if the targeted company is a retail company. Does the importance of business location play a crucial role for the success of the company? How is the location of the company you plan to acquire? Is there sufficient parking lot for customers? How does the company depend on sales in the region? How is the prospects of the business in this area? Does this place have been in the process of rapid change from new residential district office building or not? Has business location become more or less desirable because of contemplated changes in surrounding area or not?

• Competitors

Considering this aspect in order to define the capacity of the targeted business in the industry, the following questions would help: who are its competitor and what are their strategies? Does the price war happen frequently? How has the competitive environment changed?

• Business registration, permits and zoning

It’s necessary to make sure that business registration certificate and other legal documents can be easily given to the buyer. It would be better to acknowledge the procedures to transfer these documents and its fee with the help of local management consulting company in Vietnam. If the targeted company is a joint-stocks company, what is the procedure for the business registration? Can foreigners own the company 100% according to Vietnam laws?  Conditional investments in Vietnam need to be considered carefully by lawyers in Vietnam to avoid mishaps.

• The company image

Company image can be a significant asset and that cannot be assessed in the financial report. There are many intangible factors to consider when evaluating a company: how to serve customers, how employees answer the phone and the level of support the community or the industry.

Negotiate the price

It is important to understand the purpose and motivation of both parties. The sellers’ motivation are formed and affected by value drivers. There are two main value drivers which are approach value and avoidance value. Approach value is our purpose such as prosperity and avoidance value is the negative effect that we need to eliminate. Normally, the buyers try to find out what are the reasons why the owner wish to sell the companies. This will help the buyers plan a reasonable strategy beforehand.

A research analyzes the general aspects that the buyers seeking for via conducting surveys companies’ owner who have sold or transformed their enterprises. The research results are focus on profit maximization (79%), minimization of tax payable (73%), protection of viability of the company (71%)…(Source: Acquisition Marketplace Review, 2007).

The motivation of the buyer in most cases is similar to the motivation of the seller, which is to maximize profits, expand markets, increase revenue, operating areas, areas of activity, minimize taxes…

How ANT Consulting Could Help Your Business?

Please click here to learn more about ANT Consulting or contact our lawyers and consultants in Vietnam for advice via email ant@antconsult.vn or call our office at +84 28 3520 2779

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