Mergers and Acquisitions (M&A) constitute a vital strategic growth tool for enterprises in the context of global economic integration. An M&A transaction is not merely a transfer of assets or shares, but a complex legal, financial, and organizational process that requires thorough preparation and close collaboration among multiple stakeholders. In this article, TNTP outlines the fundamental steps in a typical M&A transaction.
1. Strategic Planning and Target Identification
The initial step in any M&A transaction is to clearly define the strategic rationale and objectives. Common goals include market expansion, entry into new markets, vertical or horizontal integration within the value chain, access to new technologies, or divestment from underperforming business segments. Based on these objectives, the acquiring entity must develop both qualitative and quantitative criteria for selecting a suitable target, and prepare a strategic brief to guide the entire transaction process. Concurrently, a deal team should be established, comprising representatives from legal, financial, strategic, and operational departments to ensure specialized and coordinated execution at each stage.
2. Target Search, Approach, and Preliminary Evaluation
Once a shortlist of potential targets aligned with the strategic direction is compiled, the acquirer conducts a preliminary evaluation based on selected criteria, including financial performance, feasibility of synergy realization, transparency of disclosures, and potential legal risks. Based on this assessment, the parties may proceed to preliminary discussions and sign pre-transaction documents such as a Non-Disclosure Agreement (NDA), Memorandum of Understanding (MoU), or Letter of Intent (LOI). These instruments serve as the legal groundwork for launching the due diligence process and designing an appropriate deal structure.
3. Due Diligence
Due diligence is a critical phase aimed at identifying legal, financial, and operational risks. The scope typically includes:
• Incorporation and corporate records;
• Capital structure and ownership;
• Management and organizational structure;
• Labor and employment;
• Contracts and commercial arrangements;
• Financials, tax, and accounting;
• Assets;
• Banking and credit facilities;
• Business licenses and regulatory compliance;
• Sanctions, disputes, and litigation.
4. Valuation and Deal Structuring
Depending on the nature of the target and available data, the acquirer may apply one or a combination of the following valuation methods:
• Discounted Cash Flow (DCF) method;
• Market comparables;
• Net asset value method.
Simultaneously, a suitable deal structure must be developed to align with the investment objectives and due diligence findings. Key structuring considerations include the form of acquisition (equity or asset purchase), scope of acquisition (entire equity or partial interest), implementation method (one-time or staged transaction), and payment mechanism (bank transfer, or share swap).
5. Negotiation and Contract Drafting
Primary transaction documents typically include the Share Purchase Agreement (SPA), Disclosure Letter, Ancillary Agreements, and Conditions Precedent. Key clauses to be carefully negotiated and drafted include:
• Warranties and Representations;
• Covenants;
• Liability Caps;
• Dispute Resolution Clauses;
• Conditions for suspension or termination of the deal, and indemnification.
6. Closing and Legal Formalities
Upon satisfaction of the Conditions Precedent, the parties proceed to sign the definitive agreements and consummate the transfer of shares or assets according to the agreed deal structure. Concurrently, necessary legal formalities must be fulfilled, including:
• Filing changes to corporate registration with the competent business registration authority (e.g., updates to shareholder/member information, legal representative, etc.);
• Updating internal records such as shareholder registers, member ledgers, charters, and corporate resolutions;
• Fulfilling tax obligations related to the transfer, including corporate income tax, registration fees, and personal income tax (for individual sellers);
• Disclosing transaction information as required by law, especially when involving public companies, credit institutions, or entities operating in regulated sectors.
7. Post-Merger Integration (PMI)
The post-closing integration phase is essential to realizing the full benefits of the M&A transaction. PMI should be planned prior to completion and implemented immediately thereafter. Key areas of focus include:
• Organizational restructuring: Realigning roles and responsibilities, designating legal representatives and key personnel, and harmonizing internal controls and reporting systems;
• Operational integration: Aligning accounting software, financial systems, HR management, production – business processes, and IT infrastructure;
• Cultural integration: Internal communication planning, bridging core values, and revising HR policies and compensation frameworks;
• Monitoring post-closing commitments: Maintaining contractual obligations, financial targets, and shareholder/investor protections;
• Synergy tracking: Periodic assessment of revenue, cost, workforce, market share, and productivity synergies.
An M&A transaction, if executed in accordance with sound legal and strategic frameworks, can serve as a powerful catalyst for sustainable growth. A robust legal and financial due diligence process is a prerequisite to mitigating risk and safeguarding the parties’ legitimate interests. In the context of Vietnam’s international economic integration, aligning the M&A process with global best practices is not merely a technical requirement but a core competitive advantage.
This article, titled “Basic Process of an M&A Transaction”, is provided by TNTP. Should you have any inquiries, please feel free to contact us for further assistance.
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