Mergers & Acquisitions Comparative Guide

1 Deal structure

1.1 How are private and public M&A transactions typically structured in your jurisdiction?

M&A transactions in private Vietnamese companies resemble those in other jurisdictions, comprising both:

• equity-based transactions, such as share transfers or contributions to charter capital; and
• asset-based transactions, such as asset or project sales involving Vietnamese targets.

M&A activity also extends to:

• transactions involving foreign companies that hold subsidiaries or equity interests in Vietnam, primarily targeting those interests;
• equity capital activities, including share subscriptions, issuances and contributions to charter capital involving Vietnamese entities;
• foreign direct investments by foreign investors establishing new subsidiaries or entering joint ventures with local partners in Vietnam; and
• spin-offs, where companies create new entities by separating parts of their business, allowing investment in these new entities.

Public M&A transactions can be conducted either on-market or off-market:

• On-market transactions, facilitated through the Vietnam stock exchanges, involve anonymous share purchases and typically do not require state approvals unless they trigger competition laws or cross specific shareholding thresholds (eg, 25%, prompting a mandatory public offer).
• Off-market transactions involve direct agreements between buyers and sellers, but must adhere to trading band restrictions. Transactions within the allowed price band proceed without the State Securities Commission's (SSC) approval via standard transfer systems, while those outside require specific SSC approval.

While mergers, consolidations, separations and divisions also occur, they are less prevalent in the Vietnamese M&A landscape.

1.2 What are the key differences and potential advantages and disadvantages of the various structures?

Foreign investors targeting Vietnam-domiciled companies have various structuring options, each with distinct advantages and challenges. Utilising foreign holding companies is popular due to simpler share transfers compared to the complex, approval-heavy processes required for direct capital share transfers in Vietnamese entities. However, these transactions:

• are still subject to merger control filing (if relevant thresholds are met); and
• may still require updates to significant investment or enterprise registration details if ownership changes offshore.

Additionally, capital transfer taxes apply to shares of foreign holding companies, irrespective of the domicile or tax residency of the parties involved. Non-compliance can lead the Vietnamese tax authorities to seek recovery from the local subsidiary, exposing buyers to financial risks post-completion.

Intra-Vietnam asset transfers offer another investment route, but they come with regulatory complexities and require the buyer to be domiciled in Vietnam.

These transactions typically need fresh applications for regulatory approvals and are subject to value-added tax (VAT), affecting their financial viability.

Each structuring option demands careful consideration, tailored to the specific strategic goals and operational contexts of the investment. Mergers, consolidations, separations and divisions, though often overlooked, can offer strategic advantages – particularly when licences need to be segregated during divestments. Collaborative ventures with domestic partners may provide strategic benefits, as entities with significant domestic ownership are considered domestic investors, which can facilitate market expansion.

1.3 What factors commonly influence the choice of sale process/transaction structure?

The selection of sale process and transaction structure for M&A deals in Vietnam is dictated by numerous factors, which are significantly influenced by the country's regulatory landscape. Key factors include the following:

• Foreign ownership restrictions and approvals: Vietnam's legal framework mandates specific foreign ownership limits and approval processes that vary across industries. A detailed sector-specific analysis is essential, especially when transitioning businesses from domestic to foreign ownership, which could limit previously allowed activities.
• Transfer of employees and assets: In Vietnam, employment contracts do not automatically transfer in M&A transactions (save for limited exceptions). Employees must agree to end their current contracts and negotiate new terms with the transferee. Additionally, while share transfers inherit all liabilities of the target, including tax and financial obligations, asset transfers do not but are subject to VAT.
• Target status: The structure of the transaction is heavily influenced by the target's nature. Share transactions are more straightforward when the target is a special purpose vehicle and the buyer is interested in the entire business.
• In contrast, asset transactions are preferred for selectively acquiring significant assets without broader operational encumbrances.
• Tax implications: The tax consequences differ between share and asset transfers. Share transfers can attract personal or corporate income tax, while asset transfers incur VAT. The tax impact also varies between onshore and offshore transactions, with onshore involving direct and offshore indirect transfer taxes.

Each M&A transaction in Vietnam requires a customised approach, integrating regulatory, tax and strategic considerations, necessitating thorough planning and expert consultation to ensure alignment with investment objectives.

2 Initial steps

2.1 What documents are typically entered into during the initial preparatory stage of an M&A transaction?

During the initial preparatory stage of a typical M&A transaction, several critical documents and agreements are prepared to set the foundation for the subsequent phases of the deal:

• Non-disclosure agreement (NDA): This is often the first document executed by the parties involved. The NDA ensures that all confidential information exchanged during the M&A process is protected. It outlines:
• • the scope of confidential information;
  • permitted uses;
  • disclosure restrictions; and
  • the obligations of the parties regarding confidentiality.
• Financial due diligence: Concurrent with the signing of the NDA, the buyer begins financial due diligence on the target to assess its value and identify any potential risks or liabilities.
• Memorandum of understanding/letter of intent (MOU/LOI): After the preliminary terms are agreed upon, the parties typically enter into an MOU or LOI. This document:
• • outlines the main commercial terms and conditions of the transaction; and
  • serves as a non-binding agreement, except for certain provisions such as choice of law, dispute resolution and confidentiality, which remain binding.
• Exclusivity agreement: To ensure focused negotiations, an exclusivity agreement may be signed, granting the buyer exclusive rights to negotiate with the seller for a specified period. This prevents the seller from soliciting or engaging in negotiations with other potential buyers during this time.

These documents are essential as they guide the transaction structure, protect involved parties and lay the groundwork for more detailed due diligence and the finalisation of transactional documents in subsequent stages.

2.2 Are break fees permitted in your jurisdiction (by a buyer and/or the target)? If so, under what conditions will they generally be payable? What restrictions and other considerations should be addressed in formulating break fees?

In Vietnam, break fees (also known as termination fees or penalty clauses):

• are allowed under specific conditions within M&A transactions; and
• are governed by the general principles of Vietnamese contract law.

While the Civil Code and the Law on Enterprises do not explicitly regulate break fees, they can be structured as penalties, types of income or other forms of compensation legally permissible under the laws of Vietnam, given that the concept of break fees is not explicitly recognised.

To be enforceable, break fees must be mutually agreed by all parties, with terms and conditions clearly defined. The fee amount:

• should reasonably estimate the potential damages incurred due to a contractual breach, such as an unjustified withdrawal from the transaction; and
• must not be excessively punitive.

Key considerations in implementing break fees include:

• adhering to local regulatory requirements, especially those concerning foreign exchange control – in particular, when break fees are to be remitted offshore to pay to an offshore entity;
• understanding the tax implications based on how the break fees are classified; and
• managing disclosure requirements, which may necessitate reporting the terms in financial statements or to regulatory bodies.

Additionally, the fee must be proportionate to avoid unfairly deterring competing bids or restricting the target's options in the marketplace. It is essential that all parties involved understand and agree to the implications of the break fee to ensure a transparent and justifiable arrangement.

2.3 What are the most commonly used methods of financing transactions in your jurisdiction (debt/equity)?

In Vietnam, the parties to M&A transactions utilise diverse financing methods tailored to meet specific strategic and financial needs, influenced by transaction details and participant preferences. Common methods include:

• equity;
• debt;
• hybrid structures;
• share swaps;
• leveraged buyouts (LBOs);
• mezzanine financing; and
• earnouts.

Equity financing is conducted through public offerings or private placements, allowing Vietnamese joint stock companies to issue various shares and convertible instruments such as preference shares. This method requires strict legal compliance to ensure enforceability.

Debt financing leverages the acquiring entity's cash flows through loans or bonds and is favoured in low-interest rate environments for its cost effectiveness.

Mezzanine financing combines debt and equity features, often including subordinated debt or preferred equity, offering flexibility and equity participation but with increased risk.

Earnouts align buyer and seller interests by tying part of the compensation to the target's future performance, reducing upfront costs but possibly leading to disputes over metrics.

Share swaps involve trading shares based on a set ratio, affecting ownership but linking success to the buyer's stock performance.

LBOs involve substantial borrowed funds, often secured against the target's assets, offering high potential returns but with significant risk if mismanagement occurs.

Choosing a financing method depends on:

• the transaction size;
• the acquirer's financial health; and
• the desired control level over the target.

Each method has its advantages and challenges, necessitating careful strategic decision-making based on the specific circumstances of the deal.

2.4 Which advisers and stakeholders should be involved in the initial preparatory stage of a transaction?

In the initial preparatory stage of an M&A transaction, it is vital to engage various advisers and stakeholders to ensure a comprehensive and coordinated approach. These include:

• legal advisers, who will offer legal guidance on issues such as:
• • the structure of the transaction;
  • the feasibility of the transaction given Vietnam law's restrictions on foreign ownership; and
  • preliminary legal terms which the parties may want to agree in advance, such as choice of jurisdiction and dispute resolution forum;
• financial advisers, who will:
• • perform financial due diligence;
  • assess the value of assets and Vietnamese targets; and
  • structure the transaction;
• tax advisers, who will analyse the tax implications and optimise the structure of the transaction for tax efficiency;
• commercial advisers, who will assess the value of the M&A transaction from business aspects; and
• technical advisers, who will focus on the technical, operational and engineering aspects of the project or assets.

2.5 Can the target in a private M&A transaction pay adviser costs or is this limited by rules against financial assistance or similar?

In Vietnam, the legal framework does not explicitly address the provision or prohibition of financial assistance for the payment of adviser costs in private M&A transactions. It is generally permissible for targets to bear the costs of advisers involved in these transactions. However, to ensure prudence and compliance with legal standards, several considerations must be adhered to. Payments to advisers must be contractually agreed between the target and the relevant adviser, as mandated by Vietnamese tax and accounting legislation, to legitimate any direct payments from the target to the adviser.

Additionally, the arrangements for the payment of adviser costs should be transparently disclosed and approved by the target's internal corporate bodies, in line with its charter or internal regulations – particularly if:

• the costs are substantial; or
• such arrangement represents a related-party transaction.

If payments are made in the form of reimbursements by the target or as reductions of the M&A consideration amount, such arrangements must be explicitly stipulated in the relevant M&A transaction documents.

These guidelines are designed to ensure that payments to advisers are justifiable and aligned with the company's interests, thereby protecting both the company and its shareholders.

3 Due diligence

3.1 Are there any jurisdiction-specific points relating to the following aspects of the target that a buyer should consider when conducting due diligence on the target? (a) Commercial/corporate, (b) Financial, (c) Litigation, (d) Tax, (e) Employment, (f) Intellectual property and IT, (g) Data protection, (h) Cybersecurity and (i) Real estate.

In conducting due diligence on a target in Vietnam, a buyer must meticulously review various aspects to ensure compliance with local legal and regulatory frameworks:

• Commercial/corporate: The buyer must confirm that all equity contributions are fully made within the statutory deadlines by relevant shareholders, as per local laws and contractual agreements. The status of these contributions should be verified through audited financial statements, due to the absence of public records. Additionally, the buyer should ensure that the target has all necessary regulatory authorisations, permits and approvals, including environmental and fire-related licences. Non-compliance can lead to administrative penalties and, in severe cases, business suspension or revenue confiscation.
• Financial: It is crucial to review all outstanding loans and current/contingent financial obligations to onshore or offshore obligees, as non-compliance with finance documents may have significant legal consequences.
• Real estate: During legal due diligence, verify the title and ownership, land use rights and compliance with zoning laws. Ensure that all building permits are obtained and environmental regulations are met, as liabilities in these areas can be substantial.
• Litigation, tax and employment:
• • Check for inaccessible litigation records;
  • Fulfil tax obligations through self-declaration; and
  • Scrutinise any potential employment disputes, given the propensity of regulations to favour employees.
• Intellectual property and information technology: The target's IP portfolio should be thoroughly reviewed to ensure proper registration and protection under Vietnamese law.
• Data protection and cybersecurity: With regulations becoming increasingly stringent, it is essential to evaluate the target's compliance in these areas to avoid future liabilities.

Each of these areas presents unique challenges and potential risks in the Vietnamese context, requiring careful examination in order to safeguard the buyer's investment and facilitate a smooth transaction.

3.2 What public searches are commonly conducted as part of due diligence in your jurisdiction?

In Vietnam, access to comprehensive public registers or records of corporate information remains limited. Currently, meaningful searches are largely confined to the information available on the National Business Registration Portal. Furthermore, litigation, winding-up and bankruptcy information is also restricted, with public access yet to be fully established. Since 2018, an online search platform for court judgments has been available, but it provides minimal information and anonymises the details of the parties. Similarly, information on litigation or bankruptcy is challenging to retrieve from the Vietnamese courts, even where the identities of the involved parties are known.

However, some limited public register searches are feasible, including:

• searches on the National Business Registration Portal managed by the Ministry of Planning and Investment, which allows third-party access to certain enterprise registration information;
• searches at the National Registration Agency for Secured Transactions for registered security instruments such as mortgages;
• searches at the Department of Natural Resources and Environment for security granted over land use rights which require specific documentation, such as:
• • a land use right certificate; or
  • the written consent of the land user; and
• unofficial searches at the National Office of Intellectual Property of Vietnam for IP registrations, with official searches available to ascertain the legal status of trademarks or patents.

3.3 Is pre-sale vendor legal due diligence common in your jurisdiction? If so, do the relevant forms typically give reliance and with what liability cap?

While globally such practices are common, in Vietnam, pre-sale vendor legal due diligence is still emerging as a component of M&A transactions. Vendors are increasingly undertaking legal due diligence proactively to identify and resolve potential issues, thereby enhancing transparency and streamlining the sales process. This proactive approach typically encompasses a thorough review of legal documents, contracts, licences and tax compliance, culminating in a robust data room and legal memorandum for potential buyers.

Despite these advances, the practice of allowing buyer reliance on vendor due diligence varies more significantly in Vietnam than in other jurisdictions. Typically, reliance letters are provided, allowing buyers to depend on the diligence work to some extent. However, the scope of this reliance is often a point of negotiation, reflecting the cautious approach to risk management in the Vietnamese market. Moreover, liability caps are commonly set at a percentage of the purchase price, usually ranging from 10%-25%, to balance the risk between buyers and sellers.

While vendors that offer vendor due diligence are viewed as transparent and well prepared, making their companies more attractive to potential buyers, many buyers still choose to conduct their own independent due diligence to verify findings and identify any new issues. As the practice of vendor due diligence becomes more engrained and trusted within the market, it is expected to become a more standard and integral part of the M&A process in Vietnam. This transition indicates a maturation of the local market as it moves closer to international norms, albeit tailored to reflect local regulatory and business nuances.

4 Regulatory framework

4.1 What kinds of (sector-specific and non-sector specific) regulatory approvals must be obtained before a transaction can close in your jurisdiction?

In Vietnam, regulatory approvals for M&A transactions vary by sector and company type, governed under both the Law on Investment and competition laws.

For private entities, especially when foreign investors are involved, statutory ‘acquisition approval' or ‘M&A approval' is mandatory if:

• the Vietnam target engages in any business sector that is subject to conditions applicable to foreign investors;
• the proposed transaction will result in an increase in the overall foreign ownership ratio of the Vietnam target to more than 50%; or
• the Vietnam target holds any land use rights certificate in relation to land located:
• • on an island;
  • in any coastal or border commune, ward or town; or
  • in any other area which affects national defence or security.

In terms of an economic concentration – defined to include mergers, acquisitions and joint ventures – any transaction that meets specified threshold tests requires notification to the Vietnamese competition authorities.

For private companies, changes resulting from M&A activities – such as amendments to the enterprise registration certificate or the investment registration certificate – require registration. These amendments typically cover updates to the names, particulars and ownership details of incoming members or shareholders. Although buyers often request these amendments before closing, their acceptance depends on negotiation.

In the context of public companies, shares acquired through on-market transactions generally do not require specific state approvals, except under certain conditions stipulated by the Law on Competition. However, off-market transactions or direct agreements that fall outside the designated trading band necessitate specific approval from the State Securities Commission (SSC). This ensures that transactions:

• adhere to market regulations; and
• maintain financial stability.

Overall, the regulatory landscape in Vietnam necessitates careful navigation of both sector-specific and general approvals to ensure compliance and facilitate successful M&A transactions. Each deal must be meticulously reviewed to determine the requisite approvals and amendments, reflecting the complexities of the Vietnamese legal and regulatory framework.

4.2 Which bodies are responsible for supervising M&A activity in your jurisdiction? What powers do they have?

From a legal perspective, M&A activities in Vietnam are subject to the oversight and responsibilities of various state authorities:

• Ministry of Industry and Trade and Vietnam Competition Commission: These bodies ensure that M&A transactions do not adversely affect market competition.
• Ministry of Planning and Investment and/or Department of Planning and Investment: These authorities are tasked with approving M&A transactions to ensure compliance with foreign ownership limits and investment laws.
• SSC: The SSC is responsible for approving direct agreements between buyers and sellers for acquiring shares in a public company, particularly with respect to ‘trading band' restrictions.

In addition, depending on the target's sector and registered business activities, other state authorities may be involved, such as:

• the State Bank of Vietnam, which manages M&A transactions in the banking sector;
• the Ministry of Finance, which oversees M&A transactions in the insurance sector; and
• the tax authorities, which manage M&A transactions in the transfer tax sector.

The involvement of these authorities is to ensure that M&A transactions in Vietnam adhere to legal standards, positively impact the economy, and that market stability and fairness are maintained.

4.3 What transfer taxes apply and who typically bears them?

The main taxation issue in M&A transactions in Vietnam is capital transfer tax, which applies to all capital share transfers involving Vietnam-domiciled companies. This tax is a subset of corporate income tax for companies and personal income tax for individuals, not a distinct tax category.

Vietnam law imposes capital transfer tax not only on domestic transfers but also on many international capital transfers, even if there is no change in the registered ownership within Vietnam. This tax extends to what are deemed ‘taxable indirect transfers', where the income is primarily derived from business activities within Vietnam, regardless of the business location. For these transfers, companies and non-resident sellers face a capital transfer tax rate of 20% on the capital gains realised.

For public companies, the capital transfer tax is 0.1% of the total transfer consideration, irrespective of whether a capital gain is realised. This rate applies to all individual and non-resident companies. Resident corporate sellers are subject to a normal corporate income tax rate of 20%.

In private joint stock companies, the tax is:

• 20% of the capital gain for companies; and
• 0.1% of the total transfer consideration for individuals.

For limited liability companies, the rates are:

• 20% of the capital gain for companies and resident individuals; and
• 0.1% for non-resident individuals.

Dividends paid to incorporated members/shareholders are not taxable if declared and paid after tax by Vietnam-domiciled companies. However, dividends to individuals are subject to a 5% personal income tax, save for limited exceptions, withheld for non-residents.

5 Treatment of seller liability

5.1 What are customary representations and warranties? What are the consequences of breaching them?

As in many other jurisdictions, M&A parties in Vietnam generally put forward the following customary representations and warranties:

• the power and authority to enter into the transaction documents;
• the validity and bindingness of the transaction documents; and
• the absence of any conflicts with:
• • constitutional documents;
  • material contracts;
  • judgments; or
  • other provisions of law that bind the parties.

In addition, the seller and/or target must provide further customary representations and warranties in relation to:

• the due establishment and organisation of the target;
• the due charter capital contribution to the target;
• the truthfulness and accuracy of the disclosed information;
• all required regulatory consents for operation of the target;
• sufficient rights over material assets of the target;
• compliance with the applicable laws on:
• • anti-corruption and anti-bribery;
  • labour;
  • intellectual property;
  • environment; and
  • taxes; and
• the insolvency of the target.

As Vietnam laws have no distinct concept of representations and warranties, breach of the same will be regarded as breach of contract. Statutory forms of remedies will be applied, provided that certain conditions are met. Separately, the parties can negotiate to apply other remedies for breach of contract, provided that such remedies are not contrary to:

• the basic principles of Vietnamese law;
• international treaties to which Vietnam is a member; and
• international trade practices.

On that basis, concepts such as indemnity are also used in transaction documents to deal with breaches of warranties, although this concept is not officially recognised under Vietnam laws and the enforceability of indemnities is thus debateable.

5.2 Limitations to liabilities under transaction documents (including for representations, warranties and specific indemnities) which typically apply to M&A transactions in your jurisdiction?

In M&A transactions involving foreign investors, contractual limitations align with international practices, including:

• a claim value cap of:
• • 100% of the purchase price for fundamental warranties; and
  • less for others;
• a time limit ranging from:
• • four to 10 years post-completion for fundamental or tax warranties; and
  • two to five years for other warranties;
• liability limitations if the claims result from the aggrieved party's actions or omissions;
• an obligation for the aggrieved party to mitigate losses related to claims; and
• limitations on contingent liabilities, unless they:
• • become due;
  • arise from legal changes; or
  • are fully remediable.

Vietnam's statutory limitations might partly impact the enforceability of these contractual terms:

• The general statute of limitations for filing a lawsuit under Vietnamese law is three years and arguably two years for cases brought to Vietnamese arbitration; and
• The tax authorities may impose liabilities retroactively, sometimes reaching back 10 years.

Therefore, the buyer should conduct thorough tax-related due diligence to circumvent potential statutorily limited liabilities.

5.3 What are the trends observed in respect of buyers seeking to obtain warranty and indemnity insurance in your jurisdiction?

The use of warranty and indemnity (W&I) insurance is becoming increasingly common across Asia-Pacific for both buy-side and sell-side. However, although foreign buyers may wish to take out W&I insurance, such policies are not common to local parties in Vietnam. This may be due to factors such as:

• the costs of this insurance being substantial for an emerging market such as Vietnam;
• the lack of availability of this type of insurance in the Vietnam market; and
• the potential delays to a deal arising from securing and negotiating W&I insurance.

5.4 What is the usual approach taken in your jurisdiction to ensure that a seller has sufficient substance to meet any claims by a buyer?

To ensure that sellers have adequate capacity to address potential claims from buyers in M&A transactions, a comprehensive approach is typically employed. This approach may include involving a reliable third party, such as a bank or the seller's parent company, to serve as a guarantor or an additional warrantor. This provides an extra layer of security, ensuring that there is a financially capable entity ready to fulfil obligations should the seller fail to do so.

Additionally, buyers often negotiate deferred payment terms within the sale and purchase agreement. This strategy withholds a portion of the payment until certain post-transaction conditions have been satisfied or disputes have been resolved, effectively securing a reserve against potential liabilities.

W&I insurance is also increasingly common, offering buyers protection against losses resulting from the seller's breaches of warranties and indemnities. This directly mitigates the risk associated with the seller's inability to cover claims.

Furthermore, escrow arrangements are frequently utilised, where part of the purchase price is retained in a trust account until specified conditions post-closing are met. This not only ensures that funds are available to address any necessary claims or adjustments but also aligns with international best practices, adapted to suit the local context of Vietnam's legal and business environments. Through these measures, buyers can effectively safeguard against the risks posed by potential seller claims post-transaction.

5.5 Do sellers in your jurisdiction often give restrictive covenants in sale and purchase agreements? What timeframes are generally thought to be enforceable?

Restrictive covenants are fairly common in sale and purchase agreements in Vietnam, mirroring international practices. Typically, buyers seek to protect their investments by including non-compete and non-solicitation clauses, restricting sellers from competing with or soliciting from the target. These covenants are usually in effect for a period ranging from 12 to 24 months post-transaction – a duration that sellers often find acceptable.

However, challenges arise when sellers attempt to extend these obligations to their employees, which can be perceived as infringing the employees' right to freedom of work. The enforceability of such extensions remains a contentious issue in Vietnam. While there is ongoing debate among legal stakeholders regarding the legality of imposing restrictive covenants on employees, the Vietnamese courts have shown a tendency to be more receptive to these agreements between employers and employees. This shift is influenced by international customs and practices and courts are increasingly likely to uphold such agreements, provided that they:

• are deemed reasonable; and
• do not excessively restrict the employee's future employment opportunities.

In practice, the acceptance of restrictive covenants that affect employees depends heavily on the specific circumstances of each case and the reasonableness of the restrictions imposed.

Therefore, when drafting and negotiating such clauses, it is crucial for parties to consider the potential legal challenges and structure the covenants in a way that balances the protection of the buyer's interests with the rights and freedoms of employees.

5.6 Where there is a gap between signing and closing, is it common to have conditions to closing, such as no material adverse change (MAC) and bring-down of warranties?

Conditions to closing such as MAC or no breaching warranties are common in transactions documents, because it often takes time for the parties to acquire the necessary regulatory authorisations to compete the transactions. The ‘no MAC' condition is becoming increasingly popular, given force majeure events such as COVID-19 and such other unforeseen events, such as changes in law, policy or the enforcement practice of a state authority.

A MAC clause is often well defined in the sale and purchase agreement to avoid disputes. Separately, the buyer also tends to request the inclusion of a no-breaching warranties condition in the transaction documents. However, instead of agreeing to an absolute no-breaching condition for the whole period between signing and closing, the seller often seeks to narrow the scope of the same to fundamental warranties which are only repeated at the closing date.

6 Deal process in a public M&A transaction

6.1 What is the typical timetable for an offer? What are the key milestones in this timetable?

In Vietnam, the process known as a ‘mandatory public offer' (MPO) is initiated when a buyer intends to acquire a significant shareholding in a public company. Specifically, any acquisition that raises a shareholder's stake (along with related persons or entities) to 25% or more of the issued voting share capital requires an MPO, unless an exemption is granted by the general meeting of shareholders.

The process extends further: once a shareholder's stake reaches 25%, any additional acquisitions that increase ownership to thresholds of 35%, 45%, 55%, 65% or 75% also mandate an MPO. Post-MPO, if the buyer's collective holding crosses 80% of the voting shares, there is a subsequent 30-day period during which the buyer must purchase any shares that other shareholders wish to sell at terms consistent with those of the MPO, unless the offer was for all issued shares of the company.

The MPO process involves several key steps:

• Registration: The offeror must:
• • submit necessary documents to the State Securities Commission (SSC); and
  • notify the target and any relevant fund management company.
• The SSC will confirm receipt and post this on its website within 15 days, detailing any rejections with reasons.
• Information disclosure by the target: Within three working days of receiving the application, the target must disclose the public tender offer on its electronic pages and the stock exchange's website.
• Board disclosure: Within 10 days of receipt, the target's board must provide a written assessment and recommendation regarding the offer and report to the SSC.
• Public announcement: The offeror must publicly announce the tender offer on electronic platforms and the stock exchange's website within seven working days of receiving SSC approval.

This structured approach ensures transparency and regulatory compliance in public M&A transactions in Vietnam, aligning with international practices while catering to local regulatory nuances.

6.2 Can a buyer build up a stake in the target before and/or during the transaction process? What disclosure obligations apply in this regard?

As a general rule, in relation to the trading of shares in a public company, a disclosure obligation arises when the buyer and/or its related entities acquire 5% or more of the voting shares of a public company. They must then disclose this acquisition to:

• the public company;
• the State Securities Commission (SSC); and
• the relevant stock exchange.

Any subsequent transactions that alter their shareholding by at least 1% must also be disclosed.

Prior to the initiation of an MPO process, once the threshold that triggers an MPO is crossed, the acquirer must make a formal offer to all remaining shareholders in compliance with the aforementioned regulations.

With respect to further acquisitions of shares during the MPO process, by law, from the time the bidder's authorised body decides on the MPO or when an individual bidder submits the MPO registration dossier to the SSC until the MPO concludes, the bidder is prohibited from directly or indirectly purchasing or committing to purchase shares, share purchase rights, warrants or convertible bonds of the target outside the MPO process.

6.3 Are there provisions for the squeeze-out of any remaining minority shareholders (and the ability for minority shareholders to ‘sell out')? What kind of minority shareholders rights are typical in your jurisdiction?

In Vietnam, there are no legal provisions allowing the ‘squeeze-out' of minority shareholders, a process where a shareholder reaching a certain shareholding threshold can compel the minority shareholders to sell their shares without consent. Majority shareholders cannot force the sale of minority shares unless this has been contractually agreed, such as through drag-along rights in a shareholders' agreement.

However, if a shareholder and certain related persons hold 80% or more of the voting shares in a public company after an MPO, they are required, rather than entitled, to continue buying shares from the remaining shareholders within 30 days through another MPO. The terms – including the offered price and the payment method – must be consistent with those proposed in the initial MPO.

6.4 How does a bidder demonstrate that it has committed financing for the transaction?

A bidder must demonstrate committed financing (in cash, rather than through a share swap) for a transaction through the following documents:

• MPO registration form and information disclosure statement (in the forms prescribed by law): The bidder must clearly specify the funding sources for the proposed transaction in these documents, which are included in the MPO registration application dossier submitted to the SSC and the target.
• Payment guarantee confirmation or account freeze confirmation: These documents must be issued by a credit institution to the bidder and promptly submitted to the SSC and the target before the SSC issues a written notice confirming receipt of the complete application dossier, ensuring that the bidder has sufficient funds to complete the MPO.

6.5 What threshold/level of acceptances is required to delist a company?

Shares of a public company can be delisted through either compulsory delisting or voluntary delisting.

Compulsory delisting occurs in cases prescribed by law, such as the following:

• The company loses its public company status, as notified by the SSC;
• The company ceases or is forced to cease its primary business activities for one year or more;
• The company's enterprise registration certificate or operating licence in a specialised field is revoked;
• The shares have not been traded on the stock exchange for 12 months;
• The shares are not brought into trading within 90 days of the stock exchange approving the listing registration; or
• The company incurs losses for three consecutive years, the accumulated losses exceed the paid-up charter capital or the owner's equity is negative according to the most recent audited financial statements.

If shares are delisted but the company still meets the requirements to remain a public company, it must register for trading on the Upcom trading system as required by law.

• Top of Form
• Bottom of Form

Voluntary delisting requires a public company to meet specific conditions:

• The decision must be approved by the general meeting of shareholders, with more than 50% of the votes coming from shareholders that are not major shareholders; and
• The voluntary delisting may only be conducted at least two years after the date of the decision approving the listing on the stock exchange.

6.6 Is ‘bumpitrage' a common feature in public takeovers in your jurisdiction?

‘Bumpitrage', as a strategy employed by activist investors to influence public takeovers, has not been widely recognised or commonly practised in Vietnam's M&A landscape.

6.7 Is there any minimum level of consideration that a buyer must pay on a takeover bid (eg, by reference to shares acquired in the market or to a volume-weighted average over a period of time)?

The offer price must not be lower than:

• the average reference price of the 60 consecutive trading days prior to the date of submission of the MPO registration; or
• the highest purchase price in any MPO for the shares or closed-end fund certificates of the target or investment fund during this period.

During the MPO process, the offeror may not reduce the offer price. If the offeror increases the offer price:

• it must announce the adjusted price at least seven days before the final registration date for selling shares; and
• the adjusted price must apply to all shareholders and investors that register to sell.

In such cases, the offeror must ensure the ability to pay any additional amount arising from the increased offer price.

6.8 In public takeovers, to what extent are bidders permitted to invoke MAC conditions (whether target or market-related)?

In public takeovers in Vietnam, bidders have limited ability to invoke MAC conditions to withdraw from or renegotiate a tender offer.

6.9 Are shareholder irrevocable undertakings (to accept the takeover offer) customary in your jurisdiction?

In Vietnam's M&A landscape, shareholder irrevocable undertakings to accept takeover offers are not typically emphasised as a standard practice. Nonetheless, the concept of irrevocable undertakings is acknowledged and can be effectively utilised in various contexts, including public takeovers. Such undertakings, when employed, provide a binding commitment from shareholders to accept the terms of a takeover offer, thereby offering greater certainty and reducing the risk of transaction failure.

7 Hostile bids

7.1 Are hostile bids permitted in your jurisdiction in public M&A transactions? If so, how are they typically implemented?

In Vietnam, there is no distinct legal framework that specifically addresses hostile bids, yet such bids do occur within the corporate landscape. One notable instance was Vien Dong Pharmaceutical JSC's attempt to acquire Ha Tay Pharmaceutical JSC, which proceeded despite opposition from the target's board of management (BOM).

Hostile takeovers typically begin when the acquirer, either directly or through associated parties, accumulates significant shareholdings in the target, striving to achieve controlling rights. This process is triggered once the acquirer becomes a major shareholder by securing at least 5% of the voting shares, including those held by related persons or entities. Upon reaching this threshold, legal obligations necessitate that the acquirer disclose its status as a major shareholder to:

• the target;
• the State Securities Commission (SSC); and
• the appropriate stock exchange or securities trading centre.

The disclosure must include not only the current shareholding but also any intentions regarding future acquisitions or divestments.

Moreover, reaching major shareholder status imposes further regulatory obligations, including the requirement to make a public tender offer under certain conditions stipulated by law. These offers are typically priced attractively to encourage shareholder acceptance, irrespective of the BOM's dissent.

Another strategy employed in hostile bids involves the acquirer fostering discord between the BOM and the shareholders. This can be strategically advantageous, particularly in influencing shareholders to abstain from voting in critical meetings where the BOM seeks to:

• implement defensive measures against the acquisition; or
• support changes in the BOM's composition.

7.2 Must hostile bids be publicised?

In Vietnam, hostile bids are not explicitly defined or specially regulated under current laws, and there is no express prohibition against them. However, such bids are relatively uncommon – primarily due to:

• the limited availability of public information about targets; and
• a general cultural and corporate reluctance to disclose sensitive information.

Regarding disclosure requirements, while Vietnamese law does not specifically mandate the publicity of hostile bids as such, general securities regulations enforce transparency once significant share acquisitions occur. For instance, even though the initial phase of a hostile bid might not be publicly announced, regulatory requirements kick in when an acquirer's stake reaches or exceeds a 5% threshold. At this point, the acquirer is compelled to disclose its stake to the SSC and the public. This disclosure includes details about:

• the number of shares acquired;
• the resulting percentage of ownership;
• the transaction prices; and
• the acquirer's intentions.

This framework ensures that all market participants are informed and can react appropriately to changes in company ownership. The disclosure process aligns with principles of fairness and transparency, aimed at protecting shareholder interests and maintaining market integrity.

Therefore, while the initial steps of a hostile bid may proceed without public announcement, subsequent significant acquisitions must be transparently reported, reflecting the regulatory emphasis on informed and equitable shareholder treatment.

7.3 What defences are available to a target board against a hostile bid?

Common defences against hostile takeovers, prevalent in other jurisdictions, are relatively rare in Vietnam due to the infrequency of such takeovers within the country. However, some strategies have been observed. For instance, targets may opt to:

• increase their charter capital; or
• issue more voting shares to strategic investors through private placements.

One notable example involved Bach Dang TMC Construction Investment JSC which, when threatened by a hostile acquisition, issued convertible bonds to a more amenable partner, the Vietnam Bank for Agriculture and Rural Development. This tactic aims to dilute the ownership percentage of the hostile bidder and elevate the acquisition costs, potentially deterring the hostile buyer and prompting it to retract its public tender offer.

Additionally, public companies have the option to repurchase their shares as a defence mechanism – especially when stock prices drop – to prevent acquisition by hostile entities. This repurchase must adhere to legal procedures outlined in Vietnamese law.

Moreover, if there is evidence of stock price manipulation or legal breaches in the share acquisition process, such as failure to register a public tender offer, targets have the recourse to escalate the issue to relevant courts and authorities for resolution. This legal framework not only protects companies but also ensures the integrity of market transactions and compliance with regulatory standards.

8 Trends and predictions

8.1 How would you describe the current M&A landscape and prevailing trends in your jurisdiction? What significant deals took place in the last 12 months?

Vietnam continues to attract substantial foreign investment, bolstered by a strong economic outlook and governmental efforts to improve the business environment. In 2023, Vietnam registered 122 M&A transactions, securing third position in Southeast Asia behind Singapore and Indonesia. The largest of these deals, valued at $1.527 billion, involved Sumitomo Mitsui Financial Group Inc's acquisition of a 13% stake in Vietnam Prosperity Joint Stock Commercial Bank, announced on 27 February 2023. The sectors most active in 2023 were:

• technology, media and telecoms (TMT);
• healthcare and pharmaceuticals;
• energy and infrastructure; and
• finance.

This marked a shift from the previous two years, which saw domestic investors leading in transaction volume. In 2023, however, foreign investors dominated with the top five transactions in terms of value. Predominantly, investors from Japan, Singapore and the United States were the most active, representing over 70% of the total transaction value announced.

The momentum continued into the first quarter of 2024, with Vietnamese assets attracting 21 deals worth $2.22 billion – slightly up from $2.19 billion in the same period of the previous year. The real estate sector led this period with a significant transaction in which Vingroup sold a 41.5% stake in its retail unit, Vincom Retail, to an undisclosed buyer for $984 million. Additionally, the construction, TMT and industrial and commercial sectors were notably active, each reporting three transactions in the quarter, demonstrating ongoing robust interest in Vietnam's diverse industrial landscape.

8.2 Are any new developments anticipated in the next 12 months, including any proposed legislative reforms? In particular, are you anticipating greater levels of foreign direct investment scrutiny?

Predictions for 2024 suggest significant growth in Vietnam's M&A market due to supportive policies and rising demand, especially in key sectors such as:

• green energy;
• technology;
• real estate; and
• healthcare.

Legislative developments in 2024 promise comprehensive reforms across crucial economic areas.

Notably, in the TMT sector, the new Law on Telecommunications, effective from 1 July 2024, for the first time introduces regulations on data centres, creating potential investment opportunities. The Ministry of Public Security has also released the draft Data Law for public consultation, anticipated for June 2025 issuance.

In addition, in June 2024, the National Assembly decided that the Land Law, the Law on Residential Housing and the Law on Real Estate Business would take effect five months earlier than originally scheduled, on 1 August 2024. This requires prompt completion of guiding documents which provide details on specific conditions for implementation of project land and real estate business.

Regarding the financial sector, several directives have been issued to guide the new Law on Credit Institutions 2024, which recently came into effect. These address numerous matters, including procedures for the acquisition of capital contributions in credit institutions under Circular 25/2024/TT-NHNN. However, the Law on Credit Institutions 2024 approved new rules that lower the maximum stake that investors which are organisations can hold in domestic banks to 10% of the charter capital, instead of 15% as previously. Although this move aims to reduce the risk of market manipulation, it could make investment in financial institutions less attractive.

9 Tips and traps

9.1 What are your top tips for smooth closing of M&A transactions and what potential sticking points would you highlight?

To facilitate a smooth closing, the parties should prepare a checklist of deliverables and conditions precedent for easy tracking of the implementation progress. By preparing such a comprehensive document, the parties can establish a structured framework for managing the closing process efficiently. This promotes transparency, accountability and effective communication among all parties involved, ultimately leading to a smoother and more successful closing of the M&A transaction.

In Vietnam, the successful closing of a transaction depends heavily on securing the necessary state licences and approvals, and in many cases the process for obtaining such licences is not straightforward. It is therefore essential for the parties to work closely with the relevant authorities to secure the necessary approvals. Application dossiers should be carefully prepared and reviewed in consultation with the appropriate authorities to ensure that the licensing procedures are executed smoothly.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.