THEORETICAL FRAMEWORK FOR MERGERS AND
Overview of Mergers and Acquisitions
M&A, or Mergers and Acquisitions, refers to the strategic process where businesses combine or acquire one another A merger occurs when two or more companies agree to unite their assets and market presence, resulting in the formation of a new entity and the dissolution of the original firms In contrast, an acquisition involves one company (the acquiring company) gaining control over another (the target company) by purchasing a significant portion or all of its shares or assets.
Currently, there are many different concepts of M&A, but they are homogeneous
According to Donald DePamphilis (2010), a merger involves the combination of two or more companies, resulting in the legal continuation of only one entity while the others cease operations In contrast, an acquisition refers to the process of obtaining ownership of another company.
In Vietnam, the concept of merger, acquisition and consolidation is defined as follows:
Law on Enterprises (November 29, 2005) stated that:
A merger occurs when one or more companies of the same type (referred to as merging companies) consolidate into another company (the merged company) by transferring all lawful assets, rights, obligations, and interests to the merged entity, resulting in the termination of the merging companies' existence (Article 153).
The consolidation of enterprises allows two or more companies of the same type to merge into a new entity, known as the consolidated company This process involves the transfer of all lawful assets, rights, obligations, and interests from the original companies to the new company, resulting in the termination of the existence of the companies being consolidated.
In the Law on Enterprises does not mention M&A activities that are mentioned in the Law on Competition (December 3, 2004):
A merger of enterprises involves the transfer of all lawful assets, rights, obligations, and interests from one or more companies to another, resulting in the dissolution of the merging entities.
Consolidation of enterprises refers to the process where two or more companies combine their lawful assets, rights, obligations, and interests to create a new entity, resulting in the dissolution of the original enterprises.
The acquisition of an enterprise involves one company purchasing all or part of another company's assets, enabling control or governance over its operations and trades.
Mergers, acquisitions, and consolidations involve companies of similar types and result in the dissolution of one or both entities These transactions establish new enterprises and entail the transfer of all legal assets, rights, obligations, and interests, which are crucial for defining the specific nature of the M&A deal.
The difference between mergers and acquisitions:
Mergers and acquisitions (M&A) are distinct processes despite being grouped under the same term An acquisition occurs when one company takes over another, resulting in the acquired company ceasing to exist, although its shares remain tradable In contrast, a merger involves two companies of comparable size agreeing to form a new entity, with shares of the newly created company being traded instead of those of the original firms.
In a typical M&A deal, besides the buyers and sellers, there are dealmaker, legal advisor, financial advisor doing due diligence (mainly international auditing companies) and fund provider (funds or banks):
Figure 1: Parties involving in an M&A deal
In today's competitive global business landscape, companies must evolve to survive, and one effective strategy for achieving this is through mergers and acquisitions (M&A) M&A activities serve several key purposes, including enhancing market share, increasing operational efficiencies, and fostering innovation.
Mergers and acquisitions (M&A) primarily aim to enhance operational efficiency by achieving economies of scale By merging, companies can eliminate redundant departments and operations, thereby reducing fixed costs and increasing profit margins relative to revenue This consolidation often necessitates higher labor productivity due to job reductions Furthermore, M&A allows the newly formed entity to leverage shared technologies, creating a competitive advantage and boosting overall business performance.
The company's acquisition of other firms is focused on diversifying its product and service offerings This strategy enhances consumer choice and aims to boost revenue while minimizing business risks.
Mergers and acquisitions (M&A) aim to enhance market share, reputation, and revenue growth by entering new markets and expanding marketing channels Following a merger, the newly formed entity gains a stronger position in the eyes of investors, particularly benefiting small businesses seeking capital The acquisition serves as a strategic move to broaden market reach, while the implementation of optimized processes across the organization fosters greater market appreciation and profitability.
Market penetration is crucial for expanding business areas, product lines, or distribution networks Instead of incurring high initial costs to build a new business from scratch, companies can strategically acquire domestic enterprises that already possess the necessary human resources and systems to achieve their goals This approach is especially relevant in heavily regulated markets, where entering requires meeting strict conditions; thus, acquiring an established company in the domestic market becomes a viable pathway for market entry.
Profitable companies can strategically acquire loss-making firms to leverage their tax losses, thereby reducing their overall tax liability However, in the United States and many other countries, regulations exist to restrict this practice, ensuring that the benefits of tax losses are not exploited excessively by profitable entities.
"shop" for loss making companies, limiting the tax motive of an acquiring company
Mergers and Acquisition in banking industry
1.2.1 Concept and rationale of M&A in banking industry
The bank is a type of enterprise, so M&A in banking industry will also be regulated by the general rules regarding to the acquisition and merger of enterprises
Mergers and acquisitions (M&A) have become prevalent in the global banking sector, with numerous international and domestic banks actively participating in these activities In this context, the importance of size is evident, as growth can be effectively achieved through M&A strategies, often referred to as inorganic growth Both government and private sector banks are increasingly implementing policies to facilitate mergers and acquisitions, highlighting the strategic significance of these transactions in enhancing their market presence.
Mergers and acquisitions (M&A) in the banking industry serve as a powerful strategy for enhancing and restructuring the financial system Despite its unique characteristics and stringent requirements related to risk management, safety controls, and monetary security, M&A offers numerous advantages that can significantly benefit the overall economic landscape.
(i) Concentrate resources, expand and develop the network quickly to improve the competitiveness of the bank;
(ii) Improve technology and management to enhance competitiveness, reduce operating costs;
(iii) Accelerate the publication of state-owned commercial banks;
(iv) Remove and clean the banking market’s weakness, inefficient operations;
(v) Attract effectively direct and indirect investment and boost the stock market
The M&A in banks should be studied and applied in compliance with the economy and the conditions of Vietnam
1.2.2 Benefits and costs of M&A in banking industry
The merger of two or more banks creates a larger, more powerful financial institution that leverages increased capital, human resources, and branch networks to enhance financial capabilities and reduce business risks This consolidation allows banks to undertake larger projects and strengthens their market position while simultaneously decreasing the overall number of banks, which lowers competitive pressure Additionally, operating expenses are significantly reduced by eliminating overlapping branches and streamlining management, administrative, and marketing efforts, leading to improved labor productivity and negotiation power As a result, resources are managed more effectively, assets are utilized efficiently, and the banks benefit from shared information, technology, and strengths.
Market expansion and diversification of products and services
After a bank merger, the combined entity can broaden its market reach by tapping into the customer bases of the merging banks This integration allows for a diverse range of products and services, enhancing customer appeal and attracting new clients Customers may benefit from increased savings by utilizing multiple services offered by the merged bank Additionally, the newly formed bank is likely to possess the necessary capital, technology, and resources to innovate and develop new financial products, including foreign exchange and derivatives.
Reduced costs for market entry
In highly regulated markets, banks face stringent conditions for entry, prompting many to acquire existing institutions to ensure a comprehensive service offering and enhance market share This strategy allows acquiring banks to circumvent regulatory hurdles and minimize costs and risks associated with establishing infrastructure and attracting initial customers Additionally, mergers may serve the strategic goal of acquiring innovative business ideas.
An acquiring bank will merge with or acquire a target bank that has a market value lower than its projected future cash flows It is essential that the combined value of the banks post-merger exceeds the individual values of each bank prior to the merger.
There are three main value-added effects on the financial aspects:
(i) Tax savings: A profitable bank can buy another bank that is carrying a loss to use the target's loss as their advantage by reducing their tax liability
(ii) Reduce the cost of issuing new securities: when the number of the shares issued increases, operating cost reduces
Post-merger, banks exhibit an increased capacity to manage high levels of debt, as their combined profits tend to be more stable and robust compared to those of individual banks.
The voting rights of shareholders
In shareholder meetings to approve mergers, the concerns of small shareholders often go unaddressed, as their votes typically lack the power to challenge the resolution Dissatisfied minority shareholders may choose to sell their shares, particularly since post-merger prices often dip below pre-merger values As time passes, their voting influence diminishes due to the increased total number of shares, further limiting their ability to voice objections Meanwhile, majority shareholders benefit from early access to information, allowing them to buy shares ahead of the merger, which can undermine the rights and interests of smaller shareholders.
Mergers and acquisitions often stem from the personal ambitions of managers rather than the interests of shareholders In these cases, such corporate actions are utilized by managers to enhance their own power and financial gain, potentially resulting in misguided decisions that do not align with shareholder benefits.
Mergers and acquisitions involving third parties, such as law firms, consulting firms, and investment banks, pose risks to shareholders, as these entities profit from successful transactions through high brokerage fees and collection services Their profit-driven motives can lead to biased assessments, resulting in overly optimistic statistics and remarks that may mislead clients and lead to poor decision-making.
After the merger, shareholders of the newly formed bank will experience a decrease in control due to a reduced voting rate, diminishing their power compared to before In response, major shareholders may unite to strengthen their influence over the bank's governance However, the new leadership, comprising individuals from different banks, may have conflicting personalities, increasing the likelihood of dissent Consequently, conflicts among majority shareholders in large financial corporations are an ongoing issue.
Creating a cohesive company culture is crucial for banks, especially during mergers When two or more banks combine, the unique characteristics of each institution are blended, which can lead to discomfort among employees as they navigate a new corporate environment Adapting to changes in communication with customers and colleagues from other banks requires a shift in leadership beliefs If managers do not implement a harmonious approach to integrate these cultures, the process will be prolonged Persistent employee skepticism can result in psychological instability, disorientation, and a lack of collaboration, ultimately disrupting the formation of a successful new business culture.
Bank mergers often lead to significant operational restructuring, resulting in job losses and changes in management positions This can create psychological discomfort among staff, as those who accept new roles may still feel uneasy, while others might seek employment at rival banks if dissatisfied Personnel shifts are nearly unavoidable post-merger, prompting the Board of Management (BOM) to evaluate potential losses during the restructuring process Given the unique business models of each bank, leaders may initially struggle to effectively manage the operations of the newly merged entity.
Mergers and acquisitions often face unavoidable restrictions that can impact their success Identifying these challenges and implementing effective measures is crucial for addressing issues that arise during the merger and acquisition process.
1.2.3 Methods of implementing M&A in banking industry
Merger and acquisition methods in the banking sector vary based on legal frameworks, administrative perspectives, strategic goals, ownership structures, and the unique advantages of each party involved Globally, several popular approaches exist for executing these transactions.
CURRENT SITUATION OF M&A IN VIETNAMESE
Current situation and reasons for M&A in Vietnamese banking industry
2.1.1 Legal framework for M&A activity in Vietnam
Bank is a type of business, so the general provisions of law regarding the acquisition and merger of enterprises also regulate banks
In the Law on Enterprises (2005), the rules on acquisition and merger in Article
Articles 150 to 153 outline essential aspects of business organization and management concerning the division, separation, consolidation, and merger of enterprises Additionally, the Law on Investment (2005) addresses investment methods, including capital contributions, share purchases, mergers, and acquisitions, specifically relating to both domestic and foreign investment activities within Vietnam.
The Law on Competition (2004) defines economic concentration as the actions of enterprises involving mergers, consolidations, acquisitions, joint ventures, and other forms of economic concentration (Article 16) Articles 17 through 20 detail the definitions of mergers, consolidations, and acquisitions, outline prohibited cases of economic concentration, provide exemptions for such prohibitions, and establish the requirements for notifying authorities about economic concentration activities.
Article 29, Article 32, and Article 69 of the Securities Law (2006), along with the amendments made in 2010, regulate mergers and acquisitions in the securities sector and among public companies.
Decree No 69/2007/ND-CP, issued on April 20, 2007, by the Government of Vietnam, regulates the acquisition of shares in Vietnamese commercial banks by foreign investors This decree is complemented by Circular No 07/2007/TT-NHNN, released on November 29, 2007, which provides guidance on the implementation of specific articles within the decree.
The regulation 69/2007/ND-CP outlines the ownership rights of foreign investors in Vietnamese banks, detailing the specific conditions under which Vietnamese banks can sell shares to foreign investors It also establishes the requirements for foreign credit institutions wishing to acquire shares in Vietnamese banks, as well as the criteria for foreign investors purchasing shares on the stock market Additionally, the regulation specifies the conditions for foreign involvement in the administration of Vietnamese banks.
Circular No 04/2010/TT-NHNN dated 11/02/2010 of the State Bank of Vietnam provides for the merger, consolidation and acquisition of credit institutions Circular No
The new regulations have expanded the scope of mergers, consolidations, and acquisitions of credit institutions in Vietnam, building upon the limitations set by Decision No 241/1998/QD-NHNN These updates align with the principles of the Enterprise Act 2005 and the Competition Law of 2004 regarding economic concentration, while also ensuring compliance with Vietnam's commitments to the World Trade Organization (WTO) in the finance and banking sector.
The Circular specifies that mergers, consolidations, and acquisitions among credit institutions must adhere to specific forms Mergers can occur between banks, financial companies, cooperatives, and leasing companies Consolidations involve banks and financial institutions merging to create new entities, while financial companies and leasing companies can also consolidate Acquisitions may take place between banks and financial companies or leasing companies, as well as between financial companies and leasing companies.
The Circular clarifies that consolidations, mergers, or acquisitions are permissible under the Law on Competition, provided they do not violate existing contracts Participating credit institutions are required to collaborate on proposals for these activities Furthermore, after completing a consolidation, merger, or acquisition, credit institutions must meet the legal capital requirements set by law.
The State Bank will seek input from its local branches and the People's Committees where the credit institutions are based regarding acquisition proposals If needed, consultations with relevant State Bank departments will occur to form an opinion on the proposal before a decision is made to approve or refuse it Upon approval, the credit institution must modify the proposal accordingly before submitting official records to the State Bank for final approval Subsequently, the terminated organizations must complete the withdrawal of their business licenses, while the new organization is required to finalize business registration and consolidation announcements Additionally, a Circular prohibits the distribution of assets from credit institutions during this process.
In addition to Vietnamese laws, mergers and acquisitions in the banking sector must adhere to various agreements, including bilateral and multilateral treaties with the World Trade Organization (WTO), the Vietnam-United States Trade Agreement, and ASEAN signed agreements.
For instance, the commitment of Vietnam when joining WTO are follows:
- Vietnam may limit participation of foreign credit institutions in Vietnam's state-owned commercial bank equal to participation of Vietnamese banks
In Vietnam, the total shares owned by individuals and foreign legal entities in a commercial bank cannot exceed 30% of the bank's charter capital, unless prior permission is granted by the relevant authorities in accordance with existing laws and regulations.
Current laws addressing acquisitions and mergers lack standardization and unity, as each law approaches these concepts from different perspectives The Law on Enterprises categorizes acquisitions and mergers as forms of corporate reorganization, while the Law on Investment views them as direct investment In contrast, the Law on Securities defines them as indirect investment, and the Law on Competition considers them a form of economic concentration.
The new regulations focus on the framework for acquisitions and corporate mergers, which are complex financial transactions requiring comprehensive audits, valuations, consulting, and brokerage services These processes involve various elements, including ownership transfers, legal entities, shares, stocks, financial obligations, workforce considerations, trademarks, and mechanisms for dispute resolution.
The current Competition Law prohibits mergers and acquisitions that could result in a company holding more than 50% economic concentration in a relevant market For businesses operating across multiple markets with various products, different calculations may determine that their economic concentration remains at or below the 50% threshold.
The lack of a unified calculation method for concentration levels in the banking sector is evident, as the Law on Competition focuses on market share, while Decree No 69/2007/ND-CP sets limits based on charter capital.
Evaluating M&As in Vietnamese banking industry
In the past, mergers and acquisitions (M&A) among Vietnamese banks were primarily driven by necessity rather than choice However, in recent years, this practice has evolved into an inevitable trend, yielding significant results while also facing certain limitations.
General characteristics of M&A activity in the banking sector in Vietnam:
- The value of M&A deals in the banking and financial sector is still modest
- The form of performance is simple
- Enterprises in Vietnam is still lack of knowledge about M&A
- Workforce for M&A market is unprofessional
The acquisition and merger of commercial banks have led to a healthier banking system, enhancing management capabilities and aligning required capital with international safety standards This has resulted in increased profitability, reduced bad debt, and an expanded network for banks.
The surge in mergers and acquisitions (M&A) is frequently viewed as a necessary remedy for the challenges posed by overbanking, fostering optimistic expectations not only among the banks involved in the transactions but also for the entire banking system.
The merger resulted in the formation of a larger bank that leverages economies of scale in capital, assets, workforce, and distribution systems By minimizing redundant functions and enhancing labor productivity, the new bank is positioned to lower fixed costs and improve profit margins, while effectively reorganizing human resources and technology across the merged entities.
(ii) The new bank took advantage of each other to build the product package, diversify services effectively to serve each client class;
(iii) After the merger, the new bank inherited client systems of participating banks;
The new banks have adopted an innovative model that clearly assigns tasks to enhance the management and oversight of the Executive Committee Additionally, the involvement of state-owned and foreign banks will significantly boost the management capabilities of the merged institution.
The recent sale of shares to foreign banks has significantly enhanced the financial capacity, brand reputation, and transaction capabilities of domestic banks By leveraging foreign expertise in technology, management, and international practices, these banks are addressing their weaknesses during the integration process Additionally, stricter regulations on lending practices have led to greater transparency and financial health within these institutions.
Following these transactions involving smaller banks with potential risks, the new bank significantly increased its assets and capital, thereby enhancing its financial strength This consolidation has greatly contributed to the safety and stability of the overall banking system.
2.2.2.1 Uncompleted legal and management system
Currently, there are no regulations specified to the M&A activities in general Laws issued M&A concepts inconsistently, insufficiently and not suitable
The understanding of mergers and acquisitions (M&A) in Vietnam is not consistent across various laws The Law on Investment defines "merger" and "acquisition" (Article 25), while the Law on Enterprises refers to "merger" (Article 153) and "consolidation" (Article 152), omitting the term "acquisition." Additionally, the Law on Competition does not address acquisitions (Article 17) However, the Regulation on mergers, consolidations, and acquisitions of stock banks (Decision No 241/1998/QD-NHNN) encompasses all three concepts Notably, there is no mention of M&A transactions involving a bank and a non-bank credit institution, indicating that such transactions do not breach economic concentration regulations.
Currently, there are no Vietnamese banks listed on international markets, and existing M&A regulations only outline transaction forms without detailed procedures for implementation Additionally, the lack of a specific process for addressing weak credit institutions results in inefficiencies and increased costs, as treatment is conducted in an isolated manner.
2.2.2.2 Lack of consulting company, brokers and M&A intermediaries
Consulting activities are vital to the success of M&A transactions, with major firms like Morgan Stanley and Goldman Sachs leading in the USA In contrast, Vietnam's M&A landscape relies primarily on securities and audit firms, lacking specialized consulting organizations This gap in expertise and experience hinders the development of the M&A sector and creates challenges for buyers and sellers in finding effective mediators As a result, the transparency of information during transactions is compromised, highlighting the need for improved consulting services in Vietnam's evolving market.
Domestic banks may face risks in identifying potential buyers due to their limited experience, which could result in missed opportunities in deals, unlike foreign banks that possess extensive expertise in this area.
Valuation challenges in the banking sector are particularly complex due to the significant presence of intangible assets and the difficulties in estimation within the emerging and unstable Vietnamese market Furthermore, a bank's value is influenced not only by its intrinsic worth but also by the fluctuations of the stock market.
Banks remain hesitant to discuss mergers and acquisitions (M&A) due to concerns that such moves might negatively impact the interests of managers and shareholders This reluctance is compounded by fears of being perceived as on the brink of bankruptcy, reminiscent of past M&A failures Additionally, banks have adopted a passive stance regarding state intervention for assistance.
RECOMMENDATIONS FOR M&A ACTIVITIES IN VIETNAMESE
Orientation of M&A for Vietnamese commercial banks
Vietnam's economy is undergoing a significant restructuring initiative led by the government, particularly targeting the financial sector, including banks and securities firms The State Bank of Vietnam (SBV) aims to decrease the number of commercial banks from 43 in 2010 to between 13 and 15 by 2015 Additionally, the government has opened up opportunities for foreign investors to acquire controlling interests in ten banks categorized as "Weak Banks" under a recent decision by the Prime Minister.
In early 2013, the State Bank proposed a new decree to replace Decree 69/2007/ND-CP, aimed at enhancing foreign investment in Vietnamese credit institutions While the proposal did not fully meet foreign investors' expectations for higher ownership limits or control over domestic banks, it introduced two significant changes: allowing foreigners to own over 30% of weak credit institutions with Prime Minister approval, and removing barriers that previously restricted these institutions from selling shares to foreign entities These adjustments are expected to facilitate foreign capital influx and expedite the ongoing restructuring of banks in Vietnam.
Table 5: Comparison between Decree 69 and Draft of new decree in terms of maximum ownership percentage
Decree 69 (old) Draft of new Decree
A foreign credit institution and related person
Strategic foreign investor and related person
Strategic foreign investors play a crucial role in supporting Vietnamese credit institutions by facilitating technology transfer, product development, and operational management services These investors can be individuals or organizations from abroad, dedicated to fostering growth and innovation within the Vietnamese financial sector.
From the orientation above, M&A activities in the future is supposed to be more active with two main form as follows:
3.1.1 Horizontal merger (Two or more banks merging)
The recent trend in Vietnam highlights the significant benefits derived from the merger of two banks, which enhances financial capacity and minimizes redundant functions This strategic collaboration enables the banks to tap into new customer bases, diversify their product offerings, and solidify their market position.
In this case, depending on the scale, the nature of M&A will have its own characteristics:
Mergers between small banks: we can be interpreted as the banks in-group three merged together This bank group has the highest risk of merger
- The banks with the same characteristics as the operating management, type of customer will easily adapt to each other after the merger
- Become larger banks that can meet the requirements of the charter capital, banking stability and create greater position
- Since the two banks have similar scale, it would be difficult to assign the managers of the new bank, which can cause internal disunity
- The bank would not make big changes due to no crucial support from the larger banks
The merger of large and medium banks aims to create a highly competitive financial institution capable of rivaling international banks This strategy aligns with practices observed in stable financial markets, where banks often undergo full or partial mergers to enhance their market presence and operational efficiency.
- The banks of equal scale will be more favorable to the merger
- Reduce competitor and create the dominant force in the market
- The negotiation and operation will be difficult because neither of sides want to lose the inherent position
The merger of medium and large banks with smaller banks is a strategic move that allows smaller institutions to enhance their operational capabilities while enabling larger banks to rapidly expand their market presence.
- Small banks can avoid instability affecting operation system
- Large banks can exploit the market potential of small banks
- Due to the different scale, problems of different products and services will need to be more concerned
This type of merger can be applied in the current situation that larger banks in group one and two own shares in smaller banks in group three
Foreign banks have recently taken strategic stakes in domestic banks, indicating a shift in ownership dynamics As financial liberalization progresses, it is likely that these foreign entities will fully acquire domestic banking institutions.
Advantages: domestic banks will receive financial, technical and management experience supports from foreign banks, have the opportunity to diversify products and services
Difficulties: Vietnam's financial system may depend on foreign banks; different cultural environment will disrupt banking operations
The chosen form of banking primarily depends on the development strategy, unique characteristics of each bank, market factors, and the guidance provided by the State Bank.
In order to enhance the competitiveness of Vietnamese commercial banks as well as the M&A process in the future, it is necessary to name some particular solutions.
Recommendations for M&A in the Vietnamese banking industry
Proposed solutions to round legal regulations on banking M&A deals off is as follows:
To enhance the merger and acquisition (M&A) process for commercial banks, it is essential to establish a centralized and cohesive legal framework This framework should align with the Law on Competition, ensuring that M&A regulations are designed to prevent unfair competition and monopolistic practices within the banking sector.
It is essential to evaluate additional regulations regarding mergers and acquisitions (M&A) involving Vietnamese banks listed abroad, as well as the involvement of foreign credit institutions or investors acquiring equity in multiple Vietnamese banks.
To enhance compliance with international agreements, Vietnam must amend and refine its legal system, ensuring alignment with both bilateral and multilateral commitments Developing a comprehensive roadmap and strategy for these international obligations is essential, along with effectively communicating this process to the banking sector.
To enhance transparency and accuracy in the financial reporting of banks, it is essential to establish clear regulations and suitable penalties that align with international standards This approach aims to reduce inconsistencies in information dissemination among commercial banks.
Finally, promulgate policies to encourage banks to actively merger throughout tools such as tax incentives, capital-restructuring support through the interbank market, reducing the required reserve ratio
3.2.2 Solutions from the commercial banks
To ensure a successful merger, banks need a comprehensive and well-defined plan that outlines specific objectives and anticipates potential risks By proactively addressing these risks before the merger, banks can mitigate challenges that may arise during the process Additionally, post-merger, it is essential for banks to conduct ongoing reviews to address any emerging issues effectively.
Historically, banks have faced significant challenges primarily due to liquidity issues If banks fail to enhance their liquidity and credit risk management systems following a merger, the resulting institution may struggle to maintain financial health.
Bad debt settlement is crucial in banking mergers and acquisitions (M&A) Banks must develop a targeted strategy to address these debts, utilizing various methods such as partnering with debt trading companies or isolating bad debts prior to the merger Effectively managing bad loans ensures that merging a weaker bank with a stronger one does not compromise the stability of the latter.
Valuation serves as a fundamental basis for facilitating financial transactions, yet no method exists that can perfectly quantify the benefits of a merger Traditional approaches, such as discounted cash flow analysis, often prove to be complex and imprecise, leading to potential errors in the assessment of assets and liabilities.
In transactions where buyers outnumber sellers, buyers often find themselves at a disadvantage in negotiations, resulting in sellers setting prices above market value To ensure a fair agreement, both parties should consider hiring professional consultants to facilitate price discussions.
Vietnam currently lacks a comprehensive and unified M&A law, with regulations dispersed across various legal frameworks These include the Law on Enterprises, Law on Investment, Law on Securities, Law on Competition, the Civil Code, and sector-specific laws, along with relevant provisions from international treaties that Vietnam has ratified According to the legal hierarchy, international treaty provisions take precedence over domestic laws, while general laws address matters not covered by specialized laws Additionally, specialized laws have priority over general laws in their respective industries.
Although in practice the above-mentioned rule of hierarchy may not be always clear or consistent, an appropriate approach for a foreign purchaser in an M&A deal should be as follows
To determine if a foreign buyer can acquire a target company or its assets in Vietnam, it is essential to review the relevant international treaties, particularly the commitments made by Vietnam upon its accession to the WTO, commonly known as the "WTO Commitments."
When considering an acquisition, it is essential to review relevant specialized laws, including the Law on Securities and the Law on Competition, as well as the target company's by-laws This ensures that the foreign purchaser understands any applicable restrictions that may require clearance before proceeding with the acquisition of the target company or its assets.
To ensure compliance with Vietnamese regulations, it is essential to review relevant laws, including the Law on Enterprises, the Law on Investment, the Civil Code, and forex control regulations This step guarantees that application dossiers for statutory registrations and approvals meet all legal requirements, while also confirming that transaction documents are valid and enforceable under Vietnamese law.
Integrating business operations after a merger or acquisition can present various challenges that require careful preparation from both parties Often, the full potential of products and services is not realized, and the transfer of skills and strengths between the companies may be incomplete Additionally, managers may exert excessive control over the seller, leading to a more aggressive and stringent oversight approach.
Hence, it is the need to understand partner, culture, and staff with reasonable strategy based on mutual benefit
Vietnam's finance and banking sector is experiencing significant growth in mergers and acquisitions (M&A) as it becomes increasingly integrated into the global economy This trend is expected to accelerate in the near future, highlighting the critical role of M&A activities in driving Vietnam's economic development and enhancing its position in the international market.
This thesis has analyzed and clarified the following issues