M&A knowledge
M&A knowledge
Mergers and acquisitions (M&A) are a group of transactions used to expand scale, access markets, supplement resources, or restructure business operations. This page compiles important knowledge about the transaction type, implementation process, business due diligence, legal aspects, and taxes involved in M&A transactions.
Common forms of M&A transactions
Each M&A transaction can be structured differently depending on investment objectives, target parties, ownership structure, and legal requirements. Identifying the correct transaction form helps parties choose the appropriate option and assess the issues that need to be addressed before execution.
Common forms of M&A transactions include:
Business mergers (Mergers)
One or more companies merge into another, transferring all assets, rights, obligations, and legal interests to the acquiring company; the merged company ceases to exist.
Business consolidation
When two or more companies merge to form a new company, the merged companies cease to exist as stipulated.
Buying shares or equity (Share Deal)
The buyer acquires a portion or all of the shares or capital contributions of the target enterprise to achieve the ownership and control ratio specified in the transaction.
Asset Deal
The buyer acquires a portion or all of the assets, rights, or business operations identified in the transaction, without necessarily purchasing the entire business.
Joint Venture
Two or more parties contribute capital or resources to conduct a joint business. A joint venture can be a strategic partnership structure but is not the same as a merger or acquisition.
M&A process
An M&A transaction requires phased preparation to accurately identify targets, assess the target company, control risks, and complete the deal. The specific process may vary depending on the structure, scale, and characteristics of each transaction.
The basic M&A process includes:
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01
Identify
target |
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02
Search &
partner evaluation |
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03
Due
Diligence |
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04
Negotiate &
signing |
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05
Complete
transaction |
After identifying the target and partner, the buyer typically conducts due diligence before deciding on the structure, value, and terms of the transaction. The parties then negotiate, sign, and complete the necessary procedures to finalize the deal.
Due Diligence in M&A Transactions
Due diligence is the process of reviewing and evaluating a target business before finalizing a transaction. This activity helps the buyer verify information, identify risks, assess the business's value, and establish a basis for building a suitable transaction structure and terms.
The areas that are typically assessed include:
Financial statements, assets, liabilities, revenue, expenses, cash flow, and potential financial obligations.
Legal status, licenses, ownership rights, contracts, disputes, legal obligations, and intellectual property.
The status of tax declarations and payments, outstanding amounts due, and the risk of tax arrears or potential tax liabilities.
Business model, operating processes, customers, suppliers, supply chain, and operational efficiency.
Employment contracts, staffing structure, salaries, insurance, human resource policies, and obligations towards employees.
Technology systems, data, information security, and environmental, social, and governance factors that affect transactions.
Due Diligence should not be considered a mandatory step in every M&A transaction. It is an important due diligence activity to support the transaction decision, with the scope and extent of its implementation depending on each specific deal.
Legal issues to consider when making M&A deals.
M&A transactions may be subject to simultaneous regulations under corporate law, investment law, competition law, securities law, and specialized laws. Therefore, before executing a transaction, the parties need to determine the appropriate structure and review any legal conditions that may affect the deal.
Legal issues to be aware of include:
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Centralized economic control:
Some M&A transactions may be subject to notification requirements if they meet thresholds under competition law. -
Market access conditions:
In cases involving foreign investors, it is necessary to review the business sectors, ownership ratios, and applicable market access conditions. -
Investment and registration procedures:
Depending on the transaction structure, procedures for registering capital contributions, purchasing shares, acquiring equity stakes, or changing business registration information may arise. -
Information disclosure:
For public companies, listed companies, and entities subject to securities law, the information disclosure obligations need to be reviewed. -
Contract and rights of the parties:
The purchase price, payment method, transaction terms, commitments and guarantees, responsibilities for outstanding obligations, and mechanisms for handling violations must be clearly defined.
Taxes and financing in M&A transactions
M&A transactions can give rise to different tax obligations depending on the transaction type, the transferee, and the transaction structure. Tax liability assessment should be conducted during the transaction preparation phase to identify risks and allocate responsibilities among the parties.
Common issues to consider include:
- Taxes related to the transfer of shares or capital contributions.
- Taxes on the transfer of assets or business operations.
- The target company's outstanding tax liabilities.
- Risk of retroactive tax collection and potential tax obligations.
- The contract allocates tax responsibilities between the buyer and the seller.
- The impact of transaction structure on costs and financial performance.
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Frequently Asked Questions about M&A
Some common questions about M&A transactions and issues that businesses and investors often care about.
What is M&A?
M&A is the buying and selling of businesses, in which the parties can use various transaction structures such as mergers, consolidations, acquisitions of shares, equity stakes, or assets.
How does M&A differ from mergers and consolidations?
M&A is a broad term referring to the group of mergers and acquisitions; mergers and consolidations are forms of business reorganization with specific legal frameworks.
What role does due diligence play in M&A?
Due Diligence helps parties verify information, identify risks, and assess the target business before deciding on the terms and structure of a transaction.
What should foreign investors keep in mind when conducting M&A in Vietnam?
It is necessary to check market access conditions, ownership ratios, conditional business sectors, and related investment and registration procedures.
Do M&A transactions incur tax obligations?
Tax obligations may arise depending on the type of transaction, the assets or capital being transferred, and the tax status of the target company. Therefore, it is necessary to assess specific tax obligations before finalizing the transaction.
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