M&A in Vietnam

Overview

Mergers and acquisitions (M&A) are a common approach for foreign investors to enter the Vietnam market. Through an M&A, investors can leverage the target company's existing business, including its properties, customers, and distribution channels. M&A regulations play a key role in the legal framework for such transactions. Accordingly, foreign companies can acquire shares or contributed capital, either  partially or entirely.

The structure of the transaction will differ depending on whether it is an asset deal (acquiring assets of a company) or a share deal (acquiring shares/capital in a company).

Share deal

When acquiring shares/contributed capital in an existing company in Vietnam through a share deal, several key matters should be considered:

• Conducting due diligence on the target company pre-acquisition is necessary and time-consuming.
• The percentage of ownership acquired determines the level of control attained over the target company.
• The target company retains all historical risks and instances of non-compliance.
• The share acquisition must be registered with licensing authorities. Certain governmental approvals are required in order to effect the transfer, and approval may be required before being entitled to contribute capital or acquire capital/shares (M&A Approval). The target company may also be required to update its Enterprise Registration Certificate (ERC), Investment Registration Certificate (IRC) or make certain notifications to/receive confirmations from the authorities in order to reflect the purchaser's name as one of its owners/shareholders. Merger filing requirements may also be triggered in some cases.

Licensing procedures for an M&A transaction is a critical steps which formally recognize the ownership of the purchaser in the target company. The relevant conditions and limitation of the specific investment sectors and the nationality of the purchaser should be assessed carefully before entering into a transaction .

Asset deal

A common arrangement in an asset deal is for the foreign investor to establish a new company ("NewCo") in Vietnam that acquires the business/assets from the target company. The following should be considered for an asset deal:

• NewCo does not inherit any historical risks or non-compliance from the target company.
• Comprehensive due diligence pre-acquisition may not be required.
• If establishing a NewCo, the process can take months to complete. It would take considerable time to obtain all necessary operational approvals and licenses before operations could commence.
• Ownership of land use rights, buildings/factories/construction works, vehicles would be transferred, requiring re-registration.
• Operational licenses cannot be transferred and NewCo must apply for the issuance of new licenses and sublicenses.
• Employment of the transferred employees would need to be terminated and rehired by NewCo.

In summary, an asset deal avoids inheriting risks and liabilities, but requires more time for new company formation, operational licensing, asset transfer registration, and employment termination/rehiring.

Key transactional documents

Transactional documents will be tailored for each transaction. An M&A transactions normally includes:

• Memorandum of Understanding: the parameters of the transaction as understood by the purchaser and the shareholders of the target company should be recorded in a Memorandum of Understanding ("MoU") or any similar documents such as in-principle agreement, framework agreement.
• Deposit agreement and/or any other documents as a guarantee for the transaction such as bank guarantee, corporate guarantee, escrow deposit, etc
• Sale and purchase agreements

Foreign exchange control and DICA related matters

All transactions and payments within Vietnam must be effected in Vietnamese dong, except in certain cases prescribed by the State Bank of Vietnam.

Direct Investment Capital Account (DICA) is an account in either Vietnamese Dong or in Foreign Currency that is opened and maintained by entities involved in foreign direct investment activities in Vietnam. 

The payment for the purchase of shares/capital contribution amounts between the non-resident investors and resident investor shall be made via DICA.  The payment for the purchase of shares/capital contribution amounts between the investors all being non-residents, or between the investors all being residents shall not be made via a DICA.