Cong Thanh Bui (James)
Managing Partner
Lan Nguyen (Megan)
Head of Legal Business Consulting
Mergers and Acquisitions (M&A) are essential for fostering business growth and expanding market reach. Gaining insight into these activities assists investors in corporate restructuring and market consolidation initiatives. In this article, we analyze the fundamentals and practical applications of M&A in Vietnam’s business environment.
1. What are the key legal differences to consider?
M&A stands for Mergers and Acquisitions. According to the Law on Enterprises of Vietnam, the business merger is considered a form of business reorganization.
1.1 Business merger
A business merger is the merger of one or several enterprises into another enterprise by transferring all assets, rights, obligations, and interests to the receiving enterprise. The legal consequence of this activity is to terminate the existence of the merged enterprise. Meanwhile, the merging enterprise is responsible for inheriting all assets, rights, and obligations of the enterprise that has ceased to exist.
1.2 Business acquisition
Regarding business acquisition: It should be noted that the Law on Enterprise 2020 does not officially recognize business acquisition as a form of business reorganization. However, from the perspective of the Law on Competition 2018, business acquisition can be expressed in the form of:
- buying all or part of the capital contribution, or
- buying back part or all the assets of the enterprise to gain control and domination of the enterprise or industry of the acquired enterprise.
According to this approach, the acquired business does not terminate its existence, but will operate under the control of the purchasing business.
Returning to the Law on Enterprise 2020, the regulations on the right to transfer capital contributions and voting shares of founding shareholders, the ratio of charter capital to control the decisions of the General Meeting of Shareholders and the Members Council combined with the provisions of the Law on Competition 2018 has paved the way for this form of business acquisition to develop rapidly in Vietnam.
It is not a coincidence that the Law on Competition 2018 considers mergers and acquisitions to be a form of economic concentration. The reason is that mergers and acquisitions of businesses create aggregation and growth in scale, assets, market share, and other factors that are beneficial to the merged enterprise or the controlling enterprise. This poses risks that affect safety and order, as well as the rules that shape the economic market. Therefore, M&A activities are strictly controlled with mandatory procedures.
Find out other articles relating to M&A transactions:
- Analysis of M&A landscape in Vietnam: Opportunities and emerging trends
- Due Diligence in Vietnam: Identifying potential risks before entering an M&A transaction
- Insights on common challenges in merging businesses in Vietnam
2. How do companies typically carry out Mergers & Acquisitions activities?
To expand business activities, penetrate the market or gain market share in the market, or even dominate the market by increasing competitiveness, business mergers and acquisitions are the priority choice of businesses in their business development plan for-profit goals.
a. Kinh Do Northern Joint Stock Company and KIDO Joint Stock Company
In practice, mergers often take place between subsidiaries in the same group or under the same control of the parent company to increase competitiveness by eliminating ineffective subsidiaries or increasing resources for a certain economic goal. Another form is that giants in the industry merge with weaker competitors to take advantage of the competitors’ existing brands and combine their own strong financial resources to increase profits. A typical example of this case is the merger between Kinh Do Northern Joint Stock Company and KIDO Joint Stock Company, merging into Kinh Do Joint Stock Company.
Meanwhile, business acquisitions often aim to increase scale and market share based on inheriting the available profits of the controlled business, shortening the time to enter the market or aiming to gradually unify the business to dominate the market. This will reduce competitiveness, hinder the development and stability of the market economy, and affect consumers.
b. SMBC Bank and FE Credit
Typically, the M&A deal took place in 2021 between SMBC Bank – a business from Japan and FE Credit – a consumer finance company that is a subsidiary of VP Bank. Accordingly, SMBC bought 49% of VP Bank’s shares in FE Credit.[1] The consumer finance market in Vietnam is fertile as the large population belongs to the young population with high needs for personal consumption. In addition, the Vietnamese Law creates favorable conditions for the development of unsecured loans for personal consumption purposes.
Furthermore, FE Credit is considered to be the enterprise with the majority of market share in this field, with a staff size distributed across the country and an easy way of operating to reach clients through linkages with retailer stores such as Mobile World, authorized Honda dealers, etc. This promises a bright future for SCMB to penetrate and benefit from this market. Following this transaction, 2023 marked the invasion of SCMB when it continued to own 15% of VP Bank’s shares for about 1.5 billion USD.
Thus, M&A will be an opportunity for growth in both scale and profit of businesses when entering the market with wise strategies. However, understanding the nature of these activities as well as related legal policies is an important condition for M&A to bring the expected results. However, businesses also need to pay close attention to the legal policies applicable to these activities to ensure compliance and the success of the deal.
At PLF Law Firm
For more information, you can refer to our Company Formation and Mergers and Acquisitions services. We offer comprehensive legal, financial, and accounting solutions for foreign investors, empowering them to establish a robust business foundation and develop effective market expansion strategies.
Contact us today via email at inquiry@staging-01e4-plfvn.wpcomstaging.com or +84913 902 906 or Zalo | Viber | WhatsApp to receive a free 30-minute consultation.
The article is based on laws applicable at the time noted as above and may no longer be appropriate at the time the reader approaches this article as the applicable laws and the specific cases that the reader may wish to apply may have changed. Therefore, the article is for referencing only.
