Cross-border M&A: Issues to consider

1. Introduction

In the context of globalization, cross-border mergers and acquisitions (M&A) are increasingly becoming a key strategy for Vietnamese businesses to expand markets, access advanced technology, and enhance competitiveness. However, alongside these opportunities come a series of complex legal, financial, cultural, and geopolitical barriers. This article analyzes the factors to consider when conducting international M&A.

2. Legal framework for cross-border M&A

Each country has its own unique legal system. Vietnamese businesses conducting international M&A need to ensure compliance with both domestic regulations and the laws of the host country.

• In Vietnam : According to the 2020 Investment Law, overseas investment transactions exceeding the prescribed capital threshold must be approved by the Ministry of Planning and Investment.
• In China : Investments in strategic sectors such as technology and finance are subject to strict control by the NDRC and MOFCOM.
• In Japan : The Foreign Exchange and Foreign Trade Act (FEFTA) requires notification or permission for transactions related to sensitive areas such as defense.
• In Southeast Asian countries : Many countries limit foreign ownership in the finance, real estate, and energy sectors; requiring special licenses or approvals.
• Regarding international contracts : The terms should be carefully drafted, conforming to the laws of both parties to minimize disputes.

3. Financial risks and tax obligations

• International Taxation : Cross-border M&A is affected by transfer taxes, corporate income tax, and double taxation avoidance agreements. Effectively utilizing these agreements requires specialized knowledge.
• Exchange rate fluctuations : Differences in the exchange rate between VND and foreign currencies can significantly increase transaction costs.
• Transfer pricing control : Tax authorities can conduct investigations to ensure compliance, especially in cross-border intra-company transactions.

4. Cultural and governance differences after the merger

• Negotiation style : Vietnamese people prioritize relationships and trust, while Western partners tend to focus on efficiency and time.
• Post-M&A management : Differences in organizational structure and leadership styles can lead to conflict if not properly prepared.

5. Due Diligence and Geopolitical Risk Assessment

Due Diligence, which involves examining the legal, financial, and operational aspects of a target company, is an indispensable step. However, this is more challenging abroad due to language barriers, geographical distance, and data privacy regulations (such as GDPR in the EU).

The steps to follow:

1. Legal review : Business license, employment contracts , ongoing legal disputes.

2. Financial audit : Financial statements, bad debts, tax transaction history.

3. Operational audit : Supply chain, key customer contracts, intangible assets such as intellectual property rights.

4. Changes in tax and investment policies:

Not only the US-China trade war, but also protectionist economic policies (such as the US CHIPS Act or EU regulations restricting foreign investment ) can affect M&A deals.

Some countries are tightening investment policies to protect strategic sectors such as high technology, finance, and energy.

5. Risks from geopolitical tensions:

Besides sanctions and investment restrictions, other risks such as exchange rate fluctuations due to political instability, economic sanctions, and the risk of asset nationalization can also significantly impact M&A deals.

For example, Western sanctions against Russia have forced many businesses to withdraw from this market, causing significant financial losses.

6. Businesses need contingency strategies , including political risk analysis, market diversification, and the selection of flexible trading structures to limit losses if policies change suddenly.

6. Conclusion

Cross-border M&A is a potentially lucrative growth strategy, but it also carries significant risks. Businesses need to equip themselves with solid legal knowledge, skillful financial management, cultural adaptability, and a comprehensive political risk mitigation strategy.

HTC Vietnam Law Firm is proud to be a specialized consulting firm, accompanying businesses through every stage of international M&A transactions – from legal and financial aspects to post-merger strategy.