Mergers and Acquisitions in Vietnam

Did you know that mergers and acquisitions (M&A) in Vietnam are an increasingly common means of setting up your investment? Through M&As, you can consolidate your market position, scale your operations more efficiently, or diversify your portfolio as an investor. 

If you’re considering expanding your business or want to invest in Vietnam through mergers and acquisitions, this article provides key insights on the legal frameworks and regulations governing this process. 

Overview of Mergers and Acquisitions in Vietnam

How are Mergers and Acquisitions different?

Merger and Acquisitions in Vietnam involves buying companies through shares, assets, or investments, including foreign companies with Vietnamese interests. Deals can happen on the stock market or directly between buyers and sellers. While merging or splitting companies isn’t as common, these options are available. While similar, mergers and acquisitions have distinct characteristics:

• Merger — By definition, a merger is the combination of two or more firms to create an entirely new legal entity. 
• Acquisitions – one company directly or indirectly purchases a part or all of another company’s equity shares or assets to gain control.  

Several things affect how a deal is structured, such as limits on foreign ownership, employee and asset transfers, the type of company, taxes, and industry-specific regulatory approvals. Emerhub’s local experts can help you carefully analyze your targeted market to identify what permits, certificates, or approvals you may need before entering into a merger or acquisition agreement.

Key Regulations Governing Mergers and Acquisitions in Vietnam

The Vietnam Competition Commission (VCC) is the principal merger authority in Vietnam established under Decree 03/2023/ND-CP. Under this oversight commission, there are several laws and regulations that you must take into account when planning a merger or an acquisition involving your legal entity in Vietnam:

• Law on Enterprises – This law governs the acquisition of shares in public companies, including public tender offers. The revised Law on Enterprises also protects the rights of minority shareholders in a company. This law works in conjunction with the Law on Competition to regulate economic concentrations. 
• Law on Investment –  A merger is prohibited if the merged company possesses more than 50% of the market share. If it’s between 30% and 50%, permission from the administrative agency for competition is required.
• Law on Securities – for public and listed companies, off-market transactions or direct agreements outside the designated trading band require specific approval from the State Securities Commission (SSC) to ensure adherence to market regulations and maintain financial stability. 
• Law on Competition – This law, which took effect in July 2019, expands the scope of mergers requiring review, based on total assets, revenue, transaction value, or market share of the participating parties. Any transaction that meets specified threshold tests requires notification to the Vietnamese competition authorities.

Types of Merger and Acquisition Transactions in Vietnam

Foreign-owned company to foreign-owned company

A key aspect in mergers and acquisitions for foreign-owned companies involves “acquisition approvals”. These are required when a foreign investor buys shares in a private company, especially if it increases foreign ownership in sectors with specific conditions. Vietnam’s merger control regime mandates notification and approval from the VCC if certain financial or market share thresholds are met. Here’s how the process works:

• Single-member LLC (SLLC) to a single-member LLC
  • Submit capital contribution transfer documents, including the transfer contract, to the Department of Finance. 
  • The Department of Finance reviews these documents within 15 business days and may issue an approval letter, request additional information, or require amendments. 
  • After approval, an application to change the owner must be submitted, with the entire process typically taking about a month, and payments must be made through non-cash methods.

• Single-member LLC to a multi-member LLC – Changing a single-member LLC to a multi-member LLC requires updating all company documents, adding at least an extra week to the acquisition timeline. While Emerhub can manage this paperwork, the remaining steps are the same as transferring a single-member LLC.

Locally-owned company to a foreign-owned company

A locally-owned company can also be acquired by a foreign-owned company. Transitioning from a local company to a foreign-owned requires strict adherence to foreign-ownership regulations specific to each sector. Before acquiring a locally-owned company, here’s what you need to consider:

• The World Trade Organization (WTO) agreement allows foreign ownership:
  • requires approval from the Department of Finance. 
  • Changing a single-member LLC to a multiple-member LLC also necessitates updating all company documents. 
  • The timeline can vary, with preliminary reviews taking up to 30 days and official reviews potentially extending to 90 days, or 150 days with extensions.
• No WTO commitment or local regulation for foreign investment in that business line:
  •  Initial approval from the relevant Ministry is required before proceeding with the acquisition. 
  • If the company structure needs to change to a two-or-more member LLC, the process can take one to three months due to necessary document updates. 
  • Obtaining Ministry-level approval is typically the most time-consuming part of the process.

How to Merge a Company in Vietnam

Merging a company in Vietnam involves several key steps governed by the Enterprise Law and Investment Law. Throughout this process, it is essential to ensure that all documentation is in Vietnamese and adheres to local regulations. Emerhub’s local company registration experts can help you navigate all the key steps in the process: 

1. Contract preparation
   1. A merger contract detailing the parties and specifics must be approved by shareholders, with creditors notified and employees informed within 15 days.
   2. The merging company then applies for a business registration certificate, while the merged company terminates its tax identification number by submitting the required documents.
2. Review and approval process
   1. A 30-day preliminary review by the VCC determines if a merger can proceed or requires an official evaluation, which can take up to 90 days and may be extended for complex cases. 
   2. If the VCC does not announce a decision within 30 days of the preliminary assessment, the parties may proceed with the merger, but transactions cannot be implemented without VCC approval.
3. Merger filing – Mergers classified as an ‘economic concentration’ require scrutiny if they meet certain thresholds:
   1. Total assets or turnover exceeding VND 3 trillion
   2. Transaction value of VND 1 trillion or more
   3. Combined market share exceeding 20%
4. Documentation filing – Filing for a merger in Vietnam requires the following documents translated in Vietnamese:
   1. Written notification
   2. Corporate documents
   3. Product and subsidiary list
   4. Draft agreement
   5. Market share report and competition impact assessment
5. ERC and IRC application – To formalize operations, a new entity formed through a merger must obtain an Enterprise Registration Certificate (ERC) and an Investment Registration Certificate (IRC) from the Department of Finance. The application is submitted to the licensing authority depending on the type of merger.
6. Post-merger procedures – After a merger in Vietnam, the target company transfers all its assets, labor rights, obligations, and legitimate interests to the merging company, which must ensure ongoing compliance with Vietnam’s Competition Law. Remedies for illegal transactions may include fines, divestiture, and behavioral remedies, but there is no current policy guide on implementing these measures.

Important Considerations Before Starting a Merger in Vietnam

Conduct Proper Due Diligence

Performing comprehensive due diligence is vital before entering into any transaction. This involves gathering detailed information about the target company, including:

• Verify the legitimacy and operational status of the company, as well as its legal representatives.
• Assess past transactions, capital structure, and financial health to gauge potential risks.
• Review the company’s governing documents to understand its operational framework and any restrictions on transactions.

It is best practice to use a company registry in Vietnam to obtain first-hand information about potential companies you can merge with or acquire in Vietnam. Emerhub’s sister company, Companies House offers a comprehensive overview of  registered entities in Vietnam and their key data, including:

• A company’s legal name, 
• Registered address
• Contact information
• Committed capital
• Legal representatives
• Complete capital table, including the ownership percentage of each member. 

Develop an Action Plan

It is important to evaluate the current market landscape, including competitive dynamics and economic conditions. Consider the cultural fit between merging organizations. Differences in corporate culture can lead to integration challenges post-merger. Conduct assessments to identify potential cultural clashes and develop strategies for effective integration.

Having a well-defined action plan is necessary for compliance with Vietnamese regulations. This plan should address:

• Regulatory Compliance – Ensure all necessary filings are completed with authorities such as the VCC if the transaction meets specific thresholds for economic concentration.
• Operational Continuity – Outline steps to maintain business operations during the transition period to minimize disruptions and maximize efficiency.

Understand Regulatory Requirements

Understand Vietnam’s merger control laws, particularly the Law on Competition 2018, which mandates a preliminary review by the VCC to assess potential competition concerns. Transactions raising issues may require an official assessment, and mergers resulting in significant market share (over 50%) may be prohibited or need special approval.

Emerhub can facilitate mergers and acquisitions in Vietnam by providing comprehensive due diligence services, ensuring that businesses have access to critical information about potential partners or targets. We can help you draft and review merger or transfer contracts to protect the interests of all parties involved. 

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