The Rise of Cross-Border M&A in Vietnam: Case Studies and Legal Insights

October 22nd, 2024
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M&A

Cross-border mergers and acquisitions (M&A) in Southeast Asia are thriving, and Vietnam is becoming a major player. With its rapid economic growth and supportive regulatory environment, more companies are turning to Vietnam for expansion opportunities. 

In this article, we’ll take a closer look at some of the most significant M&A deals involving Vietnamese companies, examining the legal challenges they encountered, how they tackled those issues, and the lessons learned for future transactions. 

From ThaiBev’s acquisition of Sabeco to Grab’s takeover of Uber’s Southeast Asia operations, these case studies highlight how businesses have successfully navigated Vietnam’s complex regulations.

The Growing Trend of Cross-Border M&A in S.E.A 

Cross-border M&A activity in Southeast Asia has seen rapid growth, driven by market expansion, increasing foreign direct investment (FDI), and regional integration efforts. The volume of deals has expanded significantly, with a sharp rise in transactions particularly noticeable post-pandemic as businesses seek to capitalize on the region’s high growth potential. 

In 2023, countries like Singapore, Indonesia, and Vietnam led the M&A wave, with Vietnam accounting for a significant share of deals due to its strategic position and favorable investment climate​.

Key sectors leading the surge in M&A activity include: 

  • Manufacturing
  • Technology
  • Finance
  • Consumer goods 

Vietnam, in particular, has drawn attention from international firms looking to leverage its growing industrial base and rising consumer demand. Recent notable deals include Vinamilk’s partnerships with foreign investors and the Sabeco acquisition by Thai Beverage​.

As a gateway to Southeast Asia, Vietnam’s appeal has been further enhanced by the ASEAN Economic Community (AEC), which has streamlined regulations across member countries, facilitating cross-border transactions. The AEC’s policies, including tariff reductions and eased investment restrictions, have fostered a more integrated economic environment, encouraging a rise in cross-border deals.

This combination of factors has solidified Vietnam’s position as a key player in the ongoing evolution of Southeast Asia’s M&A landscape.

Success Story 1: Thai Beverage’s Acquisition of Sabeco 

In 2017, Thai Beverage (ThaiBev) made headlines by acquiring a 53.59% stake in Sabeco (Saigon Beer Alcohol Beverage Corporation) for $4.8 billion, marking one of the largest cross-border M&A deals in Vietnam’s history. This acquisition gave ThaiBev significant control over Vietnam’s largest beer producer, further expanding its presence in the booming Southeast Asian market.

At the time, Sabeco dominated Vietnam’s beer market, controlling around 40% of the local beer industry. Vietnam itself was the largest beer market in Southeast Asia, valued at $6.5 billion, making Sabeco an attractive target for ThaiBev. 

The acquisition was seen as a key move in ThaiBev’s vision to become Southeast Asia’s largest beverage company by 2020. Sabeco’s popular beer brands, Saigon Beer and 333 Beer, allowed ThaiBev to diversify its product portfolio while tapping into Vietnam’s established distribution networks​ 

Legal and Regulatory Challenges

As a state-owned enterprise, Sabeco posed several regulatory obstacles for ThaiBev. Under Vietnamese law, foreign ownership in public companies operating in certain industries, such as beer production, was capped at 49%. At the time of the acquisition, foreign investors already held a 10.4% stake in Sabeco, limiting how much more could be purchased by outside entities​.

Resolution

To overcome this hurdle, ThaiBev utilized a Vietnamese holding company. ThaiBev established Vietnam Beverage, a locally registered company under Vietnam F&B Alliance, where ThaiBev held a 49% stake. This structure enabled Vietnam Beverage to act as a domestic investor, allowing it to purchase a majority share of Sabeco while technically remaining within the foreign ownership restrictions. 

This clever legal maneuver allowed ThaiBev to acquire a 53.59% stake in Sabeco and maintain effective control without violating Vietnam’s foreign ownership laws.

Reasons for Success

  • The use of a Vietnamese holding company allowed ThaiBev to bypass strict foreign ownership caps and comply with local regulations.
  • Acquiring well-known and established brands like Saigon Beer and 333 Beer gave ThaiBev immediate credibility and market share in Vietnam.
  • ThaiBev’s success relied on the support of legal experts familiar with Vietnam’s regulatory landscape, ensuring smooth execution despite complex ownership laws.
  • ThaiBev viewed the acquisition as part of its long-term plan to dominate Southeast Asia’s beverage market, positioning the company for future growth across the region.

Impact of the Deal

ThaiBev’s acquisition of Sabeco not only solidified its position in the region but also had a lasting impact on Vietnam’s economy. The deal highlighted Vietnam’s attractiveness as a destination for foreign investment and set a precedent for navigating regulatory challenges in the country’s evolving legal landscape. 

Sabeco’s successful integration into ThaiBev’s portfolio allowed for further growth opportunities both domestically and across Southeast Asia, reinforcing Vietnam’s role as a rising player in global M&A

Success Story 2: Vingroup’s Acquisition of Fivimart and Viễn Thông A 

In recent years, Vingroup, one of Vietnam’s largest conglomerates, made significant strides to expand its influence in the retail and electronics markets through key acquisitions. Known for its diverse business portfolio spanning real estate, hospitality, healthcare, and retail, Vingroup set its sights on two major targets:

  • Fivimart: A supermarket chain that had been partly owned by the Japanese retailer Aeon, Fivimart was a key player in Vietnam’s growing retail sector. By acquiring this business, Vingroup gained access to its extensive network of supermarkets across the country.
  • Viễn Thông A: One of Vietnam’s leading electronics retailers, Viễn Thông A had a strong presence in consumer electronics, particularly in mobile phones, laptops, and accessories. Vingroup’s acquisition of this company was aimed at strengthening its foothold in the electronics market and leveraging its vast distribution networks.

These acquisitions marked a strategic move by Vingroup to dominate both the grocery retail and electronics sectors within the domestic market, positioning the company to compete with both local and foreign retailers. 

Notably, these deals reversed the typical flow of cross-border M&A deals, where foreign companies often acquired Vietnamese firms. In this case, a Vietnamese conglomerate was taking control of foreign-owned assets within its domestic market, further asserting Vingroup’s influence in the retail and electronics sectors.

Legal and Regulatory Challenges

The acquisitions of Fivimart and Viễn Thông A came with their share of legal and regulatory challenges. Three key issues stood out:

  • Navigating complex commercial contracts: Both companies had existing contracts with suppliers, landlords, and service providers that required careful renegotiation. Vingroup needed to evaluate these agreements thoroughly to ensure a smooth transition and continued operations while minimizing risks.
  • Compliance with antitrust laws: Vingroup’s expansion raised concerns about market monopolization. The acquisitions had to comply with Vietnam’s Competition Law, which aims to prevent any single company from dominating the market.
  • Approvals from regulatory bodies: As with many significant M&A deals, Vingroup sought approvals from regulatory bodies, including the Ministry of Planning and Investment (MPI). The MPI monitors foreign investments and mergers, so Vingroup had to demonstrate that these acquisitions would benefit the economy without harming competition.

Resolution

Vingroup managed the acquisitions of Fivimart and Viễn Thông A by restructuring contracts and securing new investment agreements to comply with Vietnam’s Law on Enterprises. Thorough due diligence addressed employment contracts and liabilities, ensuring adherence to the Labor Code regarding employee benefits and severance packages. 

Reasons for Success

  • Vingroup used its strong understanding of the Vietnamese market to tackle operational challenges, including consumer preferences and supply chain logistics.
  • The legal team ensured the acquisitions met Vietnam’s Competition Law, addressing any concerns about market monopolization.
  • Vingroup performed detailed due diligence, reviewing employment contracts, supplier agreements, and potential liabilities for a smooth transition.
  • Obtaining necessary approvals from the Ministry of Planning and Investment was essential for the acquisitions to move forward under Vietnam’s investment laws.

Impact of the Deal

The successful acquisition of Fivimart and Viễn Thông A significantly bolstered Vingroup’s retail and technology presence in Vietnam. Vingroup was able to seamlessly integrate both companies into its VinCommerce and VinPro ecosystems, respectively, expanding its market share and customer base. The acquisition of Fivimart added 23 supermarkets to Vingroup’s growing retail network, while Viễn Thông A provided crucial market access in the competitive electronics sector

Success Story 3: Grab’s Acquisition of Uber’s Southeast Asia Operations

In 2018, Grab acquired Uber’s Southeast Asia operations, marking a landmark deal that reshaped the region’s ride-hailing industry. The acquisition allowed Grab to absorb Uber’s regional operations in exchange for a 27.5% stake in Grab, making it the dominant player in the Southeast Asian ride-hailing market, including Vietnam, a key market in the region.
Vietnam played a crucial role in the deal due to its fast-growing market and complex regulatory environment. As a highly competitive market with a rapidly urbanizing population, Vietnam was a key battleground for both Grab and Uber. However, the acquisition raised concerns around market competition, as Grab would effectively become the only major ride-hailing service in Vietnam, prompting regulatory scrutiny under Vietnam’s Competition Law.

Legal and Regulatory Challenges

The acquisition encountered several significant legal hurdles in Vietnam, primarily focused on antitrust issues and labor law complexities:

  • Competition Law Concerns: Following the deal, Vietnam’s Competition and Consumer Protection Department (VCCPD) launched an investigation to determine whether the acquisition created a monopolistic market. With Grab absorbing Uber’s operations, regulators were concerned about potential anti-competitive practices, such as price manipulation and unfair market dominance.
  • Labor Law Complexities: The deal also raised concerns around the absorption of Uber’s employees and independent drivers. Under Vietnamese labor laws, this involved complex issues related to employment contracts, severance payments, and the reclassification of drivers as independent contractors transitioning to Grab’s platform.

Resolution

To navigate these challenges, Grab engaged in extensive legal negotiations with Vietnamese authorities to address the competition concerns and comply with regulatory requirements:

  • Competition compliance: Grab submitted detailed merger control filings to the VCCPD, demonstrating that despite its dominant position, the ride-hailing market in Vietnam remained open to competition from other players, such as Go-Jek, which was expanding in the region at the time. 
  • Alternative dispute resolution (ADR): Grab and Uber also utilized ADR mechanisms to resolve potential disputes that arose from the acquisition, particularly around asset valuations and employment contracts. By using mediation, the companies were able to resolve these issues efficiently without resorting to litigation.
  • Labor integration: Grab worked closely with Vietnamese labor authorities to ensure a smooth transition of Uber’s employees and independent contractors into its operations. This included honoring existing employment contracts, providing necessary severance payments, and ensuring that drivers could easily migrate to the Grab platform without legal complications.

Reasons for Success

  • Grab’s legal team worked diligently to ensure that the deal complied with Vietnam’s Competition Law, addressing the antitrust concerns raised by the authorities.
  • The use of alternative dispute resolution tools helped the companies resolve disputes quickly, avoiding the need for lengthy legal battles.
  • Grab’s ability to manage the complexities of Vietnam’s labor regulations was critical in ensuring a smooth transition of employees and drivers.
  • Grab effectively demonstrated that the ride-hailing market remained open to competitors, thus satisfying regulators’ concerns about market dominance.

Impact of the Deal

The Grab-Uber deal significantly reshaped the Southeast Asian ride-hailing market, especially in Vietnam, where Grab became the leading player. This acquisition not only strengthened Grab’s market position but also allowed it to diversify into services like food delivery and financial technology.

While there were initial worries about monopolization, the deal actually maintained competition and underscored the importance of navigating Vietnam’s complex regulatory landscape. It set a precedent for future M&A activities, emphasizing the need to engage with local regulators early and to address competition concerns proactively. 

Legal Challenges in Cross-Border M&A Involving Vietnamese Companies 

Through the success case studies above, we can see that cross-border mergers and acquisitions involving Vietnamese companies are fraught with legal complexities. 

While these deals offer immense opportunities for growth and expansion, they are shaped by Vietnam’s unique regulatory landscape, including strict laws on foreign ownership, competition, and corporate governance. 

Regulatory Complexity in Vietnam

Vietnam’s regulatory landscape for mergers and acquisitions is shaped by several important laws that influence how these deals are conducted:

  • Law on Investment (2014): This law outlines the requirements for foreign investors and sets out the restrictions on foreign ownership in specific sectors such as real estate, telecommunications, and banking. For instance, foreign investors are typically limited to holding no more than 49% in public companies operating in certain industries.
  • Law on Enterprises (2020): This law governs corporate governance, share transfers, and mergers. It outlines how companies, both domestic and foreign, can operate in Vietnam and establishes the procedures for mergers, including notification and approval requirements from authorities.
  • Antitrust Regulations: Vietnam’s Competition Law (2018) addresses monopolistic behaviors and mandates merger control filings for transactions that may affect market competition. Firms must undergo reviews by regulatory bodies like the Vietnam Competition and Consumer Protection Department (VCCPD), which can delay or block a deal if anti-competitive concerns arise.
  • Approvals from Authorities: M&A deals typically require multiple approvals from local authorities, including the Ministry of Planning and Investment (MPI), State Securities Commission (SSC), and industry-specific regulatory bodies. Navigating these layers of bureaucracy can add significant time and complexity to cross-border deals.

Foreign Exchange Controls

Vietnam has strict foreign exchange controls that can pose challenges for cross-border mergers and acquisitions, especially when it comes to transferring large amounts of money. 

All transactions need to follow the Ordinance on Foreign Exchange, which regulates the conversion of Vietnamese Dong (VND) into foreign currencies, the repatriation of profits, and payments made outside the country.

Foreign investors frequently encounter difficulties when trying to repatriate profits or make significant payments in foreign currencies because of these exchange controls. These restrictions can lead to delays in transferring funds, which can impact the timing of deals.

Tax Implications

Tax considerations play a significant role in cross-border M&A. The corporate income tax (CIT) rate in Vietnam is 20%, but foreign investors may also be subject to capital gains tax when selling shares or transferring assets.

Legal teams often focus on structuring the deal to minimize tax exposure for both parties. This might involve taking advantage of tax treaties between Vietnam and other countries, or seeking tax incentives offered to foreign investors in special economic zones (SEZs) or for certain industries.

Cultural and Legal System Differences

Vietnam operates under a civil law system, while many foreign investors come from common law jurisdictions. This leads to variations in contract law, dispute resolution methods, and corporate governance practices.

These differences can create challenges, especially in interpreting and enforcing contracts, which can result in disputes in areas such as intellectual property and employment law. For instance, foreign investors often prefer arbitration as a means of resolving conflicts, while Vietnamese parties may lean towards court litigation.

To help bridge these gaps, local firms like Russin & Vecchi provide valuable expertise in both Vietnamese and international law. 

How Russin & Vecchi Can Facilitate Cross-Border M&A 

At Russin & Vecchi, we bring deep expertise in cross-border M&A throughout Southeast Asia and Vietnam. Our team is experienced in guiding both multinational corporations and local firms through the complexities of regulatory compliance, tax structuring, and dispute resolution, ensuring transactions run smoothly from start to finish.

We assist clients in navigating foreign ownership regulations and structuring deals to comply with Vietnam’s Law on Enterprises. Our role extends to managing due diligence, negotiating commercial terms, and handling legal challenges like labor contracts and potential liabilities. 

By working closely with Vietnamese authorities, we help secure the necessary approvals for M&A deals, even in tightly regulated industries.

Contact Russin & Vecchi today for expert guidance.

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