The Vietnamese government has streamlined the merger and acquisition (M&A) process to encourage investment in new sectors of the economy. And for foreign investors that see establishing a business in Vietnam as too cumbersome, the M&A route provides a unique solution to many obstacles.
With an M&A, investors can enjoy preexisting access to consumers, locations, and distribution channels. This local knowledge can prove critical to successful operations within Vietnam’s vibrant but rapidly changing investment environment.
It’s an increasingly popular investment route. M&A deals hit US$9.9 billion in 2018, according to the Vietnam Association of Foreign Invested Enterprises. While significant, it did not outpace M&A deals in 2017. Still, M&A deals are expected to pick up in 2019, particularly in the retail sector.
Most recently, VinCommerce, part of the local conglomerate Vingroup, acquired Shop&Go, a 24/7 convenience store, while South Korea’s GS25 store acquired Zakka Mart.
Deals like these should support the forecast 14 percent growth rate for M&A value this year. The General Statistics Office (GSO) projects total M&A revenue to reach US$484 billion by 2025. This growth will go beyond retail, and into real estate, renewable energy, and technology, among other sectors.
However, to successfully carry out M&As within Vietnam, it is important to recognize the legal foundation for M&As, and understand the procedures and restrictions associated with acquisitions.
Legal foundation for M&As
There is no unified legislation that governs M&As in Vietnam. M&As are governed primarily by two laws namely the Law on Enterprises and the Law on Investment. The Law on Competition and the Law on Securities are also used to govern M&As, but to a lesser extent.
More specifically, M&As within Vietnam are largely regulated by the Law on Enterprise No. 68-2014-QH13 and Law on Investment No. 67-2014-QH13. We describe the main articles directly below.
- The Law on Enterprise No. 68-2014-QH13
- Article 18 explains the rights of companies and individuals to establish an enterprise, purchase shares, and supply capital. There are some restrictions on who can participate, such as state officials, minors, and those prosecuted for criminal acts.
- Article 195 dictates the process and limitations of a merger. In the case of a possible conflict with the Law on Competition, a legal representative of the company must settle the issue with the administrative agency for competition. Once the merge has been completed, the newly formed company must submit notice to the national enterprise registration database.
2. The Law on Investment No. 67-2014-QH13
- Article 25 establishes foreign investor’s rights to contribute capital and buy capital or shares.
- Article 26 spells out the procedure to contribute capital and buy capital or shares. The application for registration must be submitted to the Service of Planning and Investment for approval.
3. Law on Securities
- This law governs the acquisition of shares in a public company including public tender offers.
- Authorities responsible for enforcing the law are State Securities Commission (SSC), Vietnam Securities Depository, and the MPI.
4. Law on Competition
- Vietnam recently passed the Competition Law, which took effect in July 2019.
- The new law expands the scope of instances where a merger is required including total assets, revenue, transaction value, or market share of the participating party. It also proposes thresholds such as the participating party having assets and revenue of US $43 million.
- The law also introduces a 30-day preliminary review where the competition authority decides whether the transaction can proceed, or an official merger evaluation is required.
Restrictions for M&As
Investors should also decide on whether the process will be a merger or an acquisition. A merger is when two companies join to form one company by transferring assets, rights, obligations and interests to the merged company and therefore terminating the merging companies.
Acquisitions require a change in ownership and are typically in the form of existing share purchases or new shares but also involve acquiring assets. For non-public companies, liability mainly stems from the failure to meet with the provisions set out in the agreement.
One of the advantages of executing a merger is that there are few restrictions. They are also an ideal option for investors that are time-constrained and without needing to step up a company.
This article is produced by Vietnam Briefing, a premium source of information for investors looking to set up and conduct business in Vietnam. The site is a publishing arm of Dezan Shira & Associates, a leading foreign investment consultancy in Asia with over 27 years of experience assisting businesses with market entry, site selection, legal, tax, accounting, HR and payroll services throughout the region.