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M&A under asset acquisition, noticeable points for enterprise

In recent years, mergers and acquisitions (M&A) transactions have been quite active with big deals such as VinCommerce and Masan Group, KEB Hana Bank and BIDV, etc., and now even in the face of difficulties due to the impact of the epidemic, the M&A market has not diminished its excitement. This is understandable because after the economy reopens, many enterprises are forced to restructure the operating model to better adapt to the new situation. In fact, depending on the objectives that the enterprise wants to aim for after the end of the M&A deal, the enterprise can choose the trading structure for the acquisition of assets or shares. In this article we will discuss M&A transactions under asset acquisition and noticeable points for the buyer.

1. Advantages of M&A under asset acquisition

The buyer is usually interested in asset acquisition of the target company instead of share/capital purchase when the final purpose is to use, exploit the assets of the target company, take its advantages which may be brought when the buyer becomes the owner, such as business advantages, location, source of customers, labor sources of other financial benefits depending on the type of target assets. This type of M&A transaction is often referred to be used for buying investment projects in Vietnam, especially the real estate project.

With this type, the buyer controls the asset only and do not become the owner of the target company after the transaction is completed. Therefore, the buyer has many options on assets to make a purchase without worrying about the financial capacity issues, and outstanding obligations of the target company to the state agency or third parties such as taxes, administrative fines, debts, and other contractual obligations.


2. Objects of trading assets

The assets that are the object of this transaction will include both tangible and intangible assets, and depending on each type of asset, the way for the buyer to become the owner will also be different.

In general, there are no specific regulations defining tangible and intangible assets, however, it is understood that tangible assets are assets of a specific material form, e.g. land, houses, other works, machinery and equipment, means of transport, production equipment, transmission equipment.

Intangible assets are assets that do not have a specific material form, capable of generating economic rights and benefits such as intellectual property, intellectual property rights, right to use, other property rights, economic benefits in a transaction, non-contractual relationships, etc.


3. Legal assessment of asset

The criteria for examining the legal status of the asset as well as the conditions to be owned for each type of asset will be different. The assessment of the current legal status of the asset will help the buyer determine the purchase price as well as the rights of the buyer after becoming the owner.


For tangible assets, some criteria that the buyer can rely on to evaluate the asset such as:

– The current ownership status of the target company, partial or full ownership, accompanying co-ownership (if any);

– The remaining ownership period for assets if there are any relevant regulations;

– Disputes and complaints that are being resolved in relation to asset;

– The current legal status of the asset, the legal documents accompanying the asset are issued in accordance with the law or not, such as the promulgating authority, information on the owner stated in the document. Especially in transactions related to construction projects, the buyer also needs to ensure that the work is being initiated and operated in accordance with regulations, so that after the buyer becomes the owner, the project can still operate without being stopped for any reasons. Currently, for M&A deals related to real estate, this is the most concerned factor for the buyer


In addition, the buyer should pay special attention to the determination of his legal capacity, particularly depending on the ownership structure of the buyer and the object of assets. In some cases the buyer is not allowed to own the asset or only allowed to own it partly, for example, if the buyer is a foreign-owned company and the assets is real estate. For the asset that is real estate, the buyer should consider the right of the buyer to the purchased asset in accordance with the relevant laws such as the Law on Land, the Law on Housing, the Law on Real Estate Enterprises, the Law on Investment, local regulations on land at different times, etc. to determine the rights and scope of ownership of the buyer after becoming the owner of the asset.


For intangible assets, specifically property rights, including intellectual property rights (IPR), the buyer needs to determine the specific right to each type of intangible assets: trademarks, industrial designs or inventions, etc.


The buyer should check the protection and the remaining protection period for this asset type. In case some asset must register for protection, the buyer needs to check the ownership of the seller stated in the protection certificate. With intellectual property rights that do not require protection registration, the buyer needs to check that whether the seller meets the criteria of an owner in accordance with the law. In addition, the buyer also needs to determine the current legal status of the IPR. This is similar to the tangible assets – check the dispute status of the IPR. One of the basis for the IP agency to reject applications related to the ownership issue is that the IPR is being complained about, disputed by any third party, the dispute may arise before or after the written protection of the IPR has been obtained.


Thus, not only for M&A under shares acquisition but also under assets acquisition, the buyer must conduct legal due diligence, which focuses on the legal issue of target assets. To set the stage for due diligence, it is necessary to recognize the original will of the parties through the letters of intent or open letters, the minutes of recognition or the table of terms. In these documents, the parties recognize some prerequisite conditions as the basis for determining the transaction to be completed as well as the formation for a legal due diligence report made by the buyer to once again determine the legal status of the property and the purchase price. To better understand the M&A process for each type at each specific stage, readers can read our other articles in the series of M&A topics posted periodically on the website each month.

The article is based on applicable law at the time noted as above and may no longer be appropriate at the time the reader approaches this article as the applicable law has changed and the specific case that the reader wishes to apply. Therefore, the article is only for reference.

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