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In recent years, the wave of mergers and acquisitions, also known as M&A, has been bustling in Vietnam. The scale and value of M&A deals are steadily increasing. Let’s explore M&A in Vietnam through this article.
What is M&A?
M&A is an abbreviation of two English words: MERGER and ACQUISITION. M&A involves acquiring and gaining control of an existing business entity or assets from an organization or an individual. The objective of M&A can be a business or business assets to carry out a specific business operation.
Examples of M&A in Vietnam
Speaking of examples of M&A in Vietnam, some notable cases include:
– Central Group’s acquisition of the Big C supermarket chain.
– TCC Group’s acquisition of the Metro supermarket chain.
– Thaibev’s acquisition of Sabeco.
– Vinfast’s acquisition of the GM factory.
– GIC Private Limited’s purchase of Vinhomes.
– Vinacapital’s acquisition of the Hilton Opera Hanoi Hotel.
The purposes of M&A
When organizations and individuals engage in M&A activities, their objective is to gain control over a business. Typically, they will purchase a certain number of shares to hold a sufficient proportion of the voting capital to influence important decisions of that business. This ownership stake is usually in the range of 50% to 65% of the target company’s charter capital, depending on the type of business and the content of the target company’s charter.
Based on this, the purposes of M&A include:
– Expanding market share and limiting competition from rivals.
– Leveraging the physical assets, brand, reputation, human resources, scientific and technological knowledge that the target business already possesses.
– Rapidly expanding a company’s production and business activities into different areas without the time and effort required to build from scratch.
– Only incurring the cost necessary to gain control of the target business, without the need to invest in creating an entirely new business.
The forms of M&A in Vietnam
There are numerous criteria to classify the forms of M&A in Vietnam. However, a common classification is based on the function of the companies involved in the M&A deal. According to this classification, there are three forms: horizontal M&A, vertical M&A, and a combination of both horizontal and vertical M&A.
Horizontal M&A
Horizontal M&A is a form of mergers and acquisitions between companies with the same business activities. In other words, it is a way of consolidating companies that offer the same product or service to the market. For example, Uber merging with Grab.
This merger will increase the market share of the post-merger company. The purpose of horizontal M&A is to expand the business’s market share, eliminate some competitors, thereby increasing revenue and profits.
Vertical M&A
Vertical M&A is a form of mergers and acquisitions between companies within the same production or business chain. Before the merger, each company is responsible for different stages in the production or business chain to bring a product or service to the market. For example, Vinfast acquiring a GM factory.
This merger helps the business become less dependent on input materials, avoiding disruptions in production. At the same time, it also reduces the cost of intermediaries and limits the supply of input materials to competitors.
Combined Horizontal and Vertical M&A
Combined horizontal and vertical M&A is a form of mergers and acquisitions to form conglomerates with diverse interests. This type of acquisition happens between companies that produce and sell different products but can complement each other, share distribution channels, or be consumed together. For example, Central Group acquiring the Big C supermarket chain.
This form of acquisition helps reduce costs for the business and provides more convenience for consumers.
Risks of M&A
Although M&A is a way to expand business operations with many advantages, it also carries significant risks if the participating parties are not well-prepared. The main risks of M&A are legal and financial risks.
Legal Risks
– During M&A negotiations, the target company needs to disclose information, documents, and even trade secrets for the buyer to determine the correct value of the acquired company. If the M&A participants are direct competitors on the market and the M&A deal fails, the buyer may gain insights into the target company’s strengths, weaknesses, and internal information. Therefore, the target company may lose its business advantage or face unhealthy competition.
– The target company may have violated the law during its production and business activities, making it subject to penalties by government authorities or even criminal liability for commercial legal entities. After completing the M&A deal, the buyer will bear the consequences if the target company is penalized by government authorities.
Financial Risks
– The seller may inflate the value of the company. After taking over the company, the buyer may find that the actual value does not match the information and documents provided by the seller.
– The buyer may not fully assess the limitations and potential risks of the target company. After a successful M&A deal, the buyer may inherit the obligations of the target company and may suffer losses due to hidden risks. For example, disputes over commercial contracts the target company signed with customers or obligations to employees.
Due to these risks, to ensure the safety of all parties involved in M&A transactions, each side should have a team of legal and financial experts to comprehensively assess all aspects, ensuring a smooth and successful M&A deal.
Legal services in the field of M&A in Vietnam
With a team of excellent lawyers with many years of experience in the areas of commerce and investment, we take pride in offering our clients professional legal services related to legal due diligence in M&A transactions in Vietnam.
