Mergers and acquisitions (M&A), especially in the real estate sector, have become increasingly common. These deals involve various parties, including buyers, sellers, and support units that facilitate their success. M&A is an attractive option for businesses and investors interested in real estate as it offers a more efficient and faster way to enter the Vietnamese real estate market. Real estate M&A can help companies seize opportunities to expand their business or invest in potential projects that other investors cannot continue to develop. This type of transaction can involve different types of real estate, such as residential, commercial, and industrial properties.
Related parties and competent authorities in real estate M&A transaction
A real estate M&A transaction typically involves several parties from the start to the end. While the buyer and seller are the main players, other participants may also be involved, such as:
– The competent state agencies are responsible for issuing licenses and approvals during the implementation of M&A transactions and ongoing real estate projects.
– Capital providers and financers for M&A deals can include banks, other organizations, and bond investors.
– Contractors involved in M&A transactions are responsible for the construction and operation of projects.
– Other parties such as consumers, buyers, and renters of real estate project products might also be involved.
Type of construction might be used to perform an M&A transaction
The options or structures utilized for real estate M&A transaction can vary based on the unique characteristics of each real estate type or project, as well as the parties’ intentions when participating in the transaction. There are several transaction options available, each with different objectives. One such option is focused on the capital contribution or share of the enterprise, while another aims to acquire a particular real estate asset or project. A third transaction option pertains to the settlement of debts between a real estate enterprise and a bank, and typically involves the transfer of debt. Finally, the fourth type of transaction is conducted through financing transactions, such as the use of convertible loans or bonds issued by real estate enterprises.
The selection of a particular transaction option or structure will depend on various factors, such as the parties’ goals, the intended timeline, and the level of risk involved.
In this article, we focus on the first structure: Trading options where the object is the capital contribution/share of the business.
Real estate M&A transaction using the option of transacting the enterprise’s capital contribution/share
The transferor transfers ownership of the capital or shares of the enterprise that owns the target real estate or real estate project to the transferee in this approach. The method has little to no direct impact on the real estate or project. The transaction may involve either the contributed capital or shares of existing members/shareholders or the additional capital or shares issued, depending on the specific case. This transaction option presents several notable features compared to other real estate M&A plans. These include:
– Procedures for Implementation
Capital contribution/share transfer transactions offer a key advantage of simplified implementation procedures when compared to direct real estate asset merger and acquisition options. These procedures generally involve the transfer of capital-contributed shares between the buyer’s and seller’s representatives, without needing extensive permission or approval from relevant government authorities.
– Tax responsibility
In the case of capital contribution/share transfer transactions, taxes will be levied on the transfer of contributed capital/shares. The calculation of taxes associated with project/asset transfer transactions based on the transfer of the assets themselves.
– Possible risks
Under this transaction option, it is essential for the transferee to be aware of potential financial and legal risks that may arise from hidden obligations pertaining to the target company during and after the implementation and completion of the transaction.
– Object of the ownership
In this transaction, the transfer subject is the ownership of the shares of the target company instead of the ownership of real estate assets.
– Enterprises must transfer responsibility and rights
To comply with regulations on capital contribution/share transactions, capital increase, additional issuance of shares, and share offers, parties involved in this type of transaction must satisfy transfer requirements based on the Law on Enterprises and the Law on Investment. Asset transfer transactions will usually have different sets of specific conditions depending on the nature of the assets involved. Parties to the transaction should be clear on their respective responsibilities and authority regarding the target enterprise.
The transfer of contributed capital/share brings several advantages
In M&A transactions that involve the transfer of contributed capital/shares, legal issues pertain primarily to the agreement on the transfer of the contributed capital/shares, the rights and obligations of shareholders and members, shareholder and member agreements, as well as the rights and obligations of the parties involved in terms of their capital contributions and shareholding status. It is also critical to ensure the legality of the real estate assets or projects in question.
Compared to transaction options relating to assets, the transfer of contributed capital/share brings several advantages such as faster transactions and simpler procedures. Instead of following a consecutive manner, it is possible to transact multiple target assets simultaneously without affecting the overall operations of the targeted company. Finally, there are no restrictions in regulations regarding the ownership of assets and licenses specifically related to real estate assets/projects.
Special notes on this type of M&A transaction
Transactions involving shares of public enterprises must comply with regulations specified in the law on securities trading. When one or more parties involved in the transaction are public companies, it is particularly important to note the following issues: the percentage of foreign ownership; regulations on shares offers; requirements on buying/selling prices; governance regulations and procedure for transfer of ownership and payment methods.
While M&A transactions executed through the capital contribution/share transaction method involve the target enterprise, in the real estate sector, the object of such transactions is real estate assets and projects. Therefore, besides assessing the legal risks of the target company, parties involved in the transaction must also ensure compliance with legal requirements for the real estate assets and projects owned or entitled by the target company.
When using the option of transacting contributed capital/share in M&A transactions, the acquirer must take into account the regulations on control and restriction of economic concentration as stated in the Law on Competition. It is essential to determine whether an M&A transaction falls into the category of prohibited economic concentration or whether mandatory procedures for the transaction must be conducted in accordance with the law provisions on competition restriction.
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