What is the definition of M&A process? Overall about M&A process

1. What is the definition of M&A process?

M&A process is a process that includes the steps involved in the merger or acquisition of a company all the way, also the activities are planned, researched, expertised, completed and enforced.

2. 5 steps during M&A process

In reality, there is no standard process or common practice for an M&A deal, especially in Vietnam’s market. Therefore, INMERGERS exclusively offers the most general process, which the process of performing an M&A transaction can be roughly divided into three main following phrase:

a. Pre - M&A - Preparation phrase

The preparation phrase for an M&A transaction plays a decisive role of winning or losing the M&A deal:

• For the seller, a meticulous planning and preparation crucial lead to the successful transactions;
• For the buyer, the process of researching and evaluating target audiences determines whether the involved parties can reach the official transaction stage or not.

During the investment preparation stage, the activities of searching, approaching and evaluating the target audience can be roughly divided into 2 steps as follows:

Step 1. Approaching target audience

Approaching the target audience can be assisted by numerous channels such as: Marketing of the seller, self-searching the buyer’s information network, through consulting units, brokerage organizations in the field of business investment or units specializing in M&A consulting;

At this step, scope of approaching depends on the Buyer's preliminary assessment of the following factors, before proceeding to the next step of acquisition roadmap:

• The Seller must operate in the field that consistent with the Buyer's development orientation;
• The Seller possesses a source of customers and partners shaped or having a certain market share in the market, which can continue to exploit, in line with the Buyer's market acquisition strategy.
• The seller often generates a long-term or medium-term investment scale that can be utilized, for instance: technology investment results, management experience, skilled labor resources.
• The Seller has a certain position in the market, hence the Buyer might have chance to reduce short-term costs and increase market share, take benefits of cross-sell service’s ability, product’s knowledge and market experience,... to continually consolidate and create new business investment opportunities;
• The Seller has the advantage of land, infrastructure and facilities, which can be utilized to minimize initial investment costs.

Step 2. Appraisal Report

Based on the preliminary assessment in step 1, the Buyer will hire professional legal and financial consulting units to assess the overall target audience, before deciding to acquire or not.

However, in reality, the Seller is not required to provide all internal information relying on the Seller's internal information control regulations, the provisions of specialized laws, the shareholder’s requests,....Therefore, the involved parties generally can sign a confidentiality agreement before the Buyer has accessed to the Seller's information data.

In Vietnam, during this period, depending on the specific target audiences and the company's needs, the Buyer hugely organizes an assessment of one or both two categories:

• Financial Due Diligence: Examining compliance with accounting standards, capital transfer, provisioning, loans from organizations and individuals, cash flow stability (with taking into account the business cycle), reviewing asset depreciation and debt recovery, etc.
• Legal Due Diligence: Evaluating total and detailed assessment of legal issues related to legal status, capital contribution and status of shareholders, legal rights and obligations management of the target audience, assets, labor, projects, etc.

Although it is only one part of the overall M&A transaction execution process, the result of the detailed appraisal report plays an indispensable role for the Buyer. It assists the Buyer to understand and summarize the issues needed to deal during the acquisition process and corporate reorganization.

Both Seller and Buyer need to prepare meticulously before entering M&A process

b. Signing M&A - Negotiation and execution phase:

Step 3: Negotiating and signing M&A

Based on the results of detailed appraisal, the Buyer can determine whether the target transaction is a full or partial acquisition, as a basis for negotiating M&A content. Noteworthy, the below issues vitally are required to keep in mind at this stage:

The Buyer and the Seller need to be equipped with in - depth knowledge about the categories and variations of the M&A transaction form. Therefore, two parties might come into an appropriate and effective negotiation. In fact, M&A (Merger & Acquisition) is always placed side by side but has different nature: With "Merger" (Buy), the acquired company ceases to exist, completely acquired by the seller, in return, with "Acquisition", the two parties agreed to merge into a new company instead of operating and owning separately. In "Acquisition" itself, there are various variations such as: horizontal mergers, market expansion mergers, product expansion mergers, group mergers, acquisition mergers, mergers and acquisitions, etc. ..

Buyer and Seller cannot meet at the Price of the transaction: The M&A paradox hugely happens since the Buyer offers an excessively high price and the Seller only accepts a low price.To solve such problem, Parties in M&A transactions tend to hire an independent appraiser taking responsibility in determining the buyer's value.

The stage’s product refers to a contract recording the form, price and content of the M&A deal. If enterprises can reach the phrase, they can come into the final stage of M&A. M&A’s contract is the expression and recognition of the participant’s commitment to the transaction which reflects the legal aspect, and also recognizes the mechanism for harmoniously coordinating the factors related to the transaction including finance, labor, management, market development,...In other words, the M&A contract needs to be used as a tool to ensure the interests of parties taking part in the transaction until the end of the M&A period.

Step 4: Legal procedures to record M&A

The process of an M&A transaction is exclusively recognized by law when the legal procedures related to the recording of the completed transfer from the Seller to the Buyer, especially with regard to assets, rights must be registered with competent authority. When this step is reached, the M&A deal is considered to have closed and completed.

c. Post-M&A - Corporate restructuring phase:

Step 5: Restructuring corporate

The post-M&A business restructuring phase is a problem for the Acquirer about not letting the M&A fail. The challenges of the Buyer in this period are usually personnel instability, immobility in management policies, conflicts in corporate culture, etc.

In addition, the resolution of legal and financial issues may have been oriented from the detailed appraisal stage, but thoroughly have resolved the outstanding issues, taken benefits and strengths of the acquired business or not, lies in the Buyer’s ability and experience.

Another problem that bothers managers in the post-M&A restructuring period is the problem of re-evaluating and exploiting acquired enterprise's human resources. Particularly, during the stage of assessment and appraisal, the Buyer mainly focuses on the interests of financial, legal and property issues, yet unanticipated issues relating to "psychology" and "people".

3. Finding customers through the M&A process

Finding customers through the M&A process begins with the sales director - a person constructs the M&A strategy for the business’s acquisition department . Following the M&A strategy, the acquisition department looks for potential customers. After finding a promising deal, the crew reports to the sales director and invites experts to participate right after the sales manager decides and selects a potential customer. The expert team mainly includes: Lawyers or consultants to conduct due diligence and come up with an appropriate M&A agreement.

Finding potential clients in M&A process

4. M&A process of real estate projects

The steps to conduct a real estate M&A deal can be summarized as follows:

Step 1: Due diligence

Like the normal M&A process, the first job in the real estate project M&A process is appraising the project documents. However, for a real estate M&A deal, the work does not only understand the available documents, but in most cases, the consulting lawyer also has to assist the client in completing the unfinished project’s documents and legal procedures. In other words, to help the seller "clean up" the project file. It is described as a challenging job, hence the consultant is required to possess both legal knowledge and practical experience that are able to detect and handle the legal procedure’s missing issues in accordance with the provisions of law.

Step 2: Proceed to divide and separate the business

This step mostly applies in cases where a business owns many projects but the Buyer only wants to take over one project. Therefore, the investor’s business must be divided into different small businesses, so that each small business owns a separate project. This is the most difficult stage for consulting lawyers. The first challenge comes from the effort to do tax finalization procedures to determine the remaining financial obligations of the divided enterprise, together with the obligations to creditors and other third parties. The second issue is the requirement to determine the divided enterprise’s value, the value of the divided asset (the project) to register the charter capital of the newly split enterprise. Usually, this part of the property value is collected from the costs of project procedures and site clearance. But in practice, these costs are often not reflected in all documents, so it is difficult to be recognized in the capital of the separated company. The problem here is how to maximize the project’s cost that the investor has spent on the value of the charter capital of the separated enterprise so that both the Seller and the Buyer are not disadvantaged.

What is the outstanding aspect of M&A process?

Step 3: Transfer of shares

After completing the separation and business registration procedures for the newly split enterprise, the parties will transfer shares in the divided company to each other. From that, the Buyer officially becomes the entire company’s head owner and acquires the project. At this point, an incurred issue comes up in the situation that the company is newly registered, the founding shareholders cannot freely transfer their contributed capital to a third party. Therefore, a technical move is bringing people of the project buyer to join the splitted company’s shareholders right after the separation process to avoid the law’s limitation.

Step 4: Register to amend the Project Investment Certificate

When the project changes to the newly splitted enterprise, it is necessary to carry out the procedure to alternate the Investment Certificate to identify the newly split enterprise as the new project’s investor..

5. Notes in the M&A process for Vietnamese companies

The M&A process for Vietnamese companies is regulated by the Law on Investment 2020 (LOI) and the Law on Enterprises 2020 (LOE) effective from January 1, 2021. These commitments eliminate the requirement for M&A approval if the transaction does not increase foreign ownership in the target company. In contrast, M&A transactions increasing foreign ownership in the target company and exceeding 50% of shares or charter capital are required to have M&A approval.

Important notes in the M&A process of enterprises in Vietnam

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