2024-09-03 · 9 min read

Overview of the M&A Process

NEXORA Law Firm has supported numerous M&A (acquisition and capital alliance) transactions across a wide range of sectors, including manufacturing, IT, distribution, real estate, education, and healthcare. Our Vietnamese attorneys, well versed in matters unique to Vietnamese practice — legal and tax due diligence, foreign ownership restrictions, competition law, and licensing review — provide consistent support across the entire process. This article is written for readers interested in "the M&A process in Vietnam," "M&A procedures for foreign investors in Vietnam," "required items for due diligence (DD)," "share transfer agreement formats," and "M&A approval and IRC amendment upon investment registration." It provides a clear, stage-by-stage explanation of the basic M&A process — consideration, investigation, contracting, approval, and closing.

01 - The Overall M&A Process

02 - Step 1: Disclosure of Transaction Terms (Wish List) and Basic Information by the Seller

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Information Required to Be Disclosed

Before the buyer can consider the M&A, the seller must first disclose its desired transaction terms and basic information. In general, this includes the following items:

① An overview of the company/business

② Financial statements for the past three fiscal years (on an actual, substantive basis rather than the tax-filing basis — because in Vietnam, businesses sometimes maintain two sets of books)

③ The desired sale price

④ The desired percentage of equity to be sold

⑤ The desired transaction structure

⑥ Other material terms

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Points to Note

Some sellers (particularly those without prior experience in cross-border M&A) will not disclose information until an in-person meeting has taken place. Given this, the M&A intermediary must manage the process skillfully.
It is necessary to confirm whether the transaction terms (wish list) disclosed by the seller reflect a decision actually made by someone with authority over the business/company. In some cases, they do not reflect the decision of an authorized person — for example, they may be merely a proposal by the company's management, or the view of only some of the shareholders. In such cases, even if the buyer conducts a good-faith review, there is a risk that, once negotiations over the terms move into a substantive stage, different terms are presented, potentially resulting in the M&A being called off altogether.

03 - Step 2: Execution of an NDA and Disclosure of Information by the Seller

*NDA stands for Non-Disclosure Agreement, i.e., a confidentiality agreement.

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Necessary Contents of an NDA

An NDA typically used in an M&A transaction consists of the following items:

· Definitions (in particular, the definition of confidential information)

· Treatment of confidential information

· Limitation of the purpose for which confidential information may be used

· Obligation to store and return information

· Limitation of liability

· Other general clauses

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Points to Note

· When negotiating with a Vietnamese counterparty or Vietnamese company, even where a confidentiality agreement has been signed, strict compliance by the counterparty cannot always be expected. It is not uncommon to see cases where false information about the identity of a buyer under negotiation, or about the negotiated terms, is conveyed to other prospective buyers in order to make the deal look more attractive or to pressure an early decision. It is therefore advisable to include a prohibition on this kind of conduct within the NDA.

· In addition, the Vietnamese side may, in order to advance the negotiation on terms favorable to itself, leak information to the media or attempt to force through its position by treating its own claims as an established fact. Countermeasures against this kind of conduct should also be considered.

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Disclosure of Information by the Seller

The list of documents required to be disclosed depends on the subject of the M&A (whether it is a transfer of assets or a transfer of shares/equity interests), and the documents to be disclosed will also vary depending on the scope of due diligence in the next step.

"Example"

A typical list of disclosure materials relating to a real estate project, or to a company's real estate-related items (a common scenario)

Real estate-related materials

【Real Estate Investment Project】

The investment policy decision for the real estate project, and the Investment Registration Certificate (IRC) (both original issuance and amended versions)

Documents relating to the history of acquiring the real estate project, other applications submitted to the competent authorities, correspondence with government agencies, meeting minutes, etc.

【Land Use Rights】

The approval decision for land use needs

Various documents relating to the recovery of land use rights

The decision document for the lease (allocation) of land use rights, and the lease agreement

The transfer agreement for the land use rights (combined with the investment project, if applicable)

The land use rights certificate (the "red book")

【Structures on the Land】

The approval decision for the detailed 1/500-scale planning of the property

The approval decision for the design of the property

The approval document for the environmental impact assessment report (if any)

The approval document for the fire protection design (if any)

The construction license

Various documents relating to completion of construction, and the authorities' confirmation document prior to use of the property

The fire protection acceptance confirmation document

The ownership certificate for the structure (if any)

【Other】

Documents relating to the creation of a mortgage or other security interest

Documents relating to the valuation of the real estate

Insurance contracts, guarantees, etc. relating to the real estate

04 - Step 3: Preliminary Due Diligence

*DD (Due Diligence) refers to acquisition due diligence.

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Purpose of Preliminary Due Diligence (Legal DD)

Conducting full-scale due diligence requires a significant amount of time and cost. For this reason, we recommend conducting a preliminary due diligence limited to the key items necessary to decide whether to proceed with the M&A. Thereafter, it is more efficient to proceed to full-scale due diligence in order to verify the seller's representations and warranties and to understand the target's post-acquisition operational status.

The purposes of preliminary due diligence are as follows:

① Deciding Whether to Proceed With the Transaction

By scrutinizing the key items, the parties can decide whether to proceed to the next step. This includes confirming whether the foreign investor (or foreign-invested company) is even permitted to carry out the proposed M&A transaction (in light of foreign ownership restrictions), and whether there are any material compliance violations, and deciding whether to proceed based on that assessment.

② Material for Negotiating Transaction Terms

The information obtained can be used as material for negotiating transaction terms. If a problem is found with the M&A target, the transaction price, the representations and warranties, and other conditions can be adjusted to reflect that problem.

③ Considering an Appropriate Transaction Structure/Business Structure

The results of the preliminary due diligence make it possible to determine a feasible M&A transaction structure and future business structure. Once the M&A transaction structure has been narrowed down, subsequent negotiation time can be shortened, and related matters can be organized more quickly (without the need to consider a variety of possible transaction structures in parallel).

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Scope of Preliminary Due Diligence (Legal DD)

The scope of review will vary depending on the subject of the M&A (a transfer of assets, or a transfer of shares/equity interests), so a case-by-case determination is required.

05 - Steps 4 & 5: Negotiating Basic Terms and Signing the M&A Letter of Intent

An M&A Letter of Intent (LOI) or Memorandum of Understanding (MOU) is a document used at an early stage of M&A negotiations to confirm the parties' basic intentions. This document typically contains a mix of binding and non-binding provisions, and serves to set the direction for subsequent detailed negotiations and due diligence. The key items that should be included in a letter of intent are as follows:

① The subject of the M&A (assets, or shares/equity interests)

② The M&A transaction structure

③ The transaction amount and payment terms

④ Exclusive negotiation rights

⑤ Representations and warranties (the most important item)

⑥ Conditions precedent to signing the transfer agreement, and conditions for completing the transaction (the most important item)

⑦ Legal binding effect

⑧ Allocation of costs (both where a transfer agreement is ultimately signed and where it is not)

⑨ Other general clauses

06 - Step 6: Conducting Full-Scale Due Diligence and Drafting the M&A Agreement

Based on the letter of intent agreed in Step 5, full-scale due diligence must be conducted to verify the accuracy of the seller's representations and warranties and to thoroughly understand the post-acquisition operational status of the business/company. Depending on the results of the full-scale due diligence, the parties will either proceed to draft and sign a transfer agreement (a Share Purchase Agreement (SPA) or an Asset Purchase Agreement (APA)), or call off the M&A transaction (due to inaccuracy in the seller's representations and warranties, the inability to satisfy a condition precedent, etc.). Where the M&A transaction is called off, the buyer may proceed to claim damages against the seller.

07 - Step 7: Signing and Performing the Sale and Purchase Agreement

The transfer agreement for an M&A transaction is by no means a simple document. It must include legally sophisticated provisions, including restrictions applicable to the seller after the transfer. It must also reflect the results of the full-scale due diligence. For this reason, the process should be carried out with advice from in-house counsel or outside legal advisors.

08 - Step 8: Carrying Out the Closing Procedures

The closing procedures required will vary depending on the subject of the M&A (a transfer of assets or a transfer of the company) and the structure adopted, so a case-by-case review is required.

Overview of the M&amp;A Process