Because of the significant influence of each M&A deal, investors must always be cautious when researching and performing the signing of M&A contracts. However, the risks from the terms of the contract are not easy to recognize. In this article, Apolo Lawyers will highlight noteworthy points when signing an M&A contract. Our clients, who have a problem with legal due diligence issues, do not hesitate to contact us via email at contact@apolo.com.vn or Hotline - (+84) 903419479.

Before you can perform any activities related to an M&A transaction, it is necessary to understand the nature of an M&A transaction.

1. What is an M&A transaction?

Mergers and Acquisitions (M&A) refer to transactions between two companies combining in some form. Although mergers and acquisitions (M&A) are used interchangeably, they come with different legal meanings. In a merger, two companies of similar size combine to form a new single entity.

On the other hand, an acquisition is when a larger company acquires a smaller company, thereby absorbing the business of the smaller company. M&A deals can be friendly or hostile, depending on the approval of board of the target company.

2. Noteworthy points when signing M&A contracts.

Investors typically conduct the signing and closing process and take on the responsibility for organizing the process, obtaining signatures, and drafting and negotiating all closing documents. Investors must:

First, pay attention to the assurance and assurance measures. This is a form of forcing the participating parties to ensure that the information provided is entirely accurate at the time of signing. When drafting a contract, the parties to the contract must agree to this guarantee and this guarantee is a contractual obligation for which the two parties will be responsible for what they have declared and committed.

if this clause is just a declaration of the parties when entering into an M&A contract, then basically according to the provisions of law, this will not be a legal basis to have the right to claim compensation. Usually damages if one of the parties provides untruthful and causes damage.

Second, the mechanism for determining and adjusting prices. One of the important activities that can determine the future of deal is the valuation of business. The two parties involved need to clearly stipulate the relevant terms, because this valuation result depends on many different factors.

More attention should be paid to disputes that may occur in practice such as: Extra payment based on business performance; one party breaching a contractual obligation; Prerequisites; Reimbursement; or Other disputes (usually labor and shareholder disputes).

>>> Read more: Legal advice on Mergers and Acquisitions (M&A) in Vietnam

>>> Read more: Legal advice on tranfer of investment project in Vietnam

3. Disputes often occur when the parties signed M&A contract.

First, breach of warranties and guarantees.

As mentioned above, warranties and guarantees involves the provisions as well as the information, have been indentified as the basis for entering into contract, so this dispute is quite complicated.

Second, the mechanism of price determination and adjustment.

This problem often arises when the parties have fully paid one or all and have other price adjustment mechanisms right after the conclusion of the contract. However, the parties when signing a contract will be based on a certain pricing method as well as a certain price adjustment that has been agreed in advance.

Third, contractual obligations are breached.

This kind of dispute often arise when the parties do not follow the management and operation of the company, which was agreed upon after the completion of the transaction. Disputes often arise immediately after the completion of the contract.

Fourth, claim for damages, fines for violations and late payment of interest.

According to Vietnamese law, when violating, they will have to pay compensation according to reality. Parties often seek monetary damages because it feels easier and quicker than demanding performance.

Preparing and drafting an M&A contract before signing is a complicated process. To reduce the potential risks for the parties, this process should be conducted by attorneys. Apolo Lawyers is a law firm providing legal service relating to consulting and drafting business contracts. If you want to know more detail about our service, please contact Apolo Lawyers via email at contact@apolo.com.vn or Hotline - (+84) 903419479 for the best legal advice and support.

APOLO LAWYERS.