Mergers and Acquisitions (M&A) has become popular in Vietnam as the country develops and more investors are eager to invest and gain control of the business enough to engage in, decide important business matters through partial or full ownership of an enterprise. A successful M&A mean the parties achieve their financial and commercial goals (increasing capital, raising management capacity, branding, etc) and ensuring safety and restraint the risk at the lowest level, though legal due diligence undertaken by law firms in Vietnam.
The Importance of Legal Due Diligence of Enterprise in M&A activities
Legal due diligence of enterprises focuses on full and detailed assessment of legal issues relating to the legal entity, capital contribution status, shareholder status, legal rights and obligations. From the investigation information, the parties can anticipate legal risks, assess opportunities to come up with alternatives. In addition, legal assessments help parties evaluate the reliability of their counterparts as well as understand their advantages and constraints for the negotiation process.
What Legal Due Diligence in M&A Activities Entail?
- Evaluate the factors related to the legal status and capacity of the target enterprise: Review the legitimacy of the establishment, operation, possession of enterprise; ensure that the enterprise is not subject to procedures for dissolution or bankruptcy and compliance with the law of the enterprise in the course of operation. The information to be checked includes: dossiers, certificate of enterprise establishment, operation licenses, practice certificates, professional liability insurance, company charter, agreement between the company owner on rights of shareholders, capital contributors, minutes of meetings, member/shareholder register, certificate of capital contribution.
- Evaluate the factors related to the business and financial activities of the target enterprise: Review the system of customers and partners of the enterprise; the documents on economic contracts (with customers, suppliers, etc); dossier of investment, construction, land, project; information on guarantee, mortgage (if any), debt and credit agreement, M&A, financial leasing contract, exclusive contract, franchise, etc, in terms of value, legality, validity, progress to evaluate legal risks in the future. Review the financial statements on the accuracy of the financial status of the business.
- Verify the factors related to labor: Review labor contracts, labor agreements, internal labor regulations to determine the enterprise’s financial obligations to employees, compliance Labor law and reception of labor after the purchase or sale.
- Verify the factors related to intellectual property: Review intellectual property rights of enterprises including: trademarks, trade names, industrial designs, layout designs, business secrets, etc; the property has granted the patent/license. Review matters of infringement of intellectual property rights of other organizations, individuals or legal persons in order to anticipate the risks of being sued or claiming damages.
In addition, in an M&A deal, the acquirer should ensure that participation in capital contribution or acquisition of the target enterprise is permitted, the form of M&A implementation is in accordance with the law and the M&A deal was approved by the competent authority of each party. After that, the factors related to M&A transaction procedures and constraints and restrictions of law (if any) must be evaluated.