When is M&A Considered Economic Concentration?

“When is M&A considered economic concentration?” is a pivotal question for determining the notification obligations and competition law compliance of enterprises when executing Merger and Acquisition transactions. Correctly identifying the nature of M&A activities helps businesses accurately assess the risk of being subject to economic concentration control and the danger of handling violations. The article below by Long Phan Consultants analyzes current legal regulations to clarify the time when M&A is deemed economic concentration and the issues businesses need to note.

What is M&A?

M&A stands for Mergers and Acquisitions. Currently, Vietnamese law does not have a specific definition for the term “M&A”; therefore, it is understood as the activity of gaining control of an enterprise through merging with or acquiring part or all of another enterprise.

• Mergers: According to Clause 2, Article 29 of the Law on Competition 2018, this is the transfer by one or more enterprises of all their assets, rights, obligations, and lawful interests to another enterprise, simultaneously terminating the business operation or existence of the merging enterprises.
• Acquisitions: This refers to an enterprise directly or indirectly purchasing all or part of the capital contribution or assets of another enterprise sufficient to control or govern the acquired enterprise or a business line of the acquired enterprise (Clause 4, Article 29, Law on Competition 2018).
• Purpose and Benefits: M&A deals typically aim to participate in and decide important issues of the target enterprise, not merely to own shares. Benefits include expanding market share, improving business efficiency, optimizing personnel, reducing unnecessary costs, and leveraging technology transfer.

>>> See more: Comprehensive, quality consulting services on company merger procedures

Forms of economic concentration

Based on Article 29 of the Law on Competition 2018, forms of economic concentration include specific activities that change market structure.

• Recognized Forms: Economic concentration encompasses: (1) Merger of enterprises; (2) Consolidation of enterprises; (3) Acquisition of enterprises; (4) Joint ventures between enterprises; and (5) Other forms as prescribed by law.
• Prohibited Concentration: Pursuant to Article 30 of the Law on Competition 2018, enterprises performing economic concentration that causes or is likely to cause a significant competition-restraining impact on the Vietnamese market are considered prohibited.
• Assessment Criteria: M&A is considered economic concentration when it falls under the recognized forms. The assessment of its impact is based on combined market share, the degree of market concentration, and barriers to market entry for other enterprises.

The value of a business merger transaction must be reported to the National Competition Commission.

Enterprises must notify the National Competition Commission before execution if they meet specific thresholds defined in Article 13 of Decree 35/2020/ND-CP.

1. General Thresholds for Standard Enterprises Notification is required if any of the following are met in the preceding fiscal year:

• Total Assets or Total Turnover on the Vietnamese market of the enterprise (or its group of affiliated enterprises) reaches 3,000 billion VND or more.
• The Transaction Value of the economic concentration is 1,000 billion VND or more.

2. Market Share Threshold

• Regardless of the sector, if the combined market share of the enterprises intending to participate in the economic concentration is 20% or more on the relevant market in the fiscal year preceding the transaction, notification is mandatory.

3. Specific Thresholds for Financial Institutions For credit institutions, insurance enterprises, and securities companies, the thresholds are higher and distinct:

• Total Assets/Turnover: E.g., Assets > 15,000 billion VND for Insurance/Securities or > 20% of the system’s total assets for Credit institutions.
• Transaction Value: > 3,000 billion VND for Insurance/Securities or > 20% of the system’s total charter capital for Credit institutions.

>>> See more: The role of M&A consulting in mergers and acquisitions deals

Legal consulting services on M&A at Long Phan Consulting

Long Phan Consultants provides comprehensive advisory services for M&A deals, ensuring compliance and maximizing benefits for clients. We approach each deal with meticulous analysis to identify and manage risks from the preliminary stage.

• Legal Advisory and M&A Due Diligence:
  • Conduct comprehensive due diligence on the target enterprise (legal status, assets, labor, contracts, financial obligations).
  • Assess potential risks and propose remedial plans before the transaction.
  • Accurately determine the “relevant market” and calculate market share to assess the obligation to notify economic concentration.
• Drafting and Negotiating M&A Contracts:
  • Assist in drafting and reviewing critical documents such as Share Purchase Agreements (SPA), Shareholder Agreements (SHA), and Company Charters.
  • Represent clients in negotiating transaction terms to balance interests and bind strict legal responsibilities.
  • Advise on optimal transaction structures to minimize tax burdens and comply with foreign investment regulations.
• Administrative Procedures and Compliance:
  • Execute procedures for changing enterprise registration, capital transfer, and re-issuance of Investment Registration Certificates post-M&A.
  • Represent clients in preparing dossiers and performing the economic concentration notification procedure with the National Competition Commission if the transaction meets the reporting threshold.

Frequently Asked Questions

Below are some frequently asked questions about M&A activities and economic concentration; please refer to them:

When must businesses submit the notification of economic concentration?

Businesses are required to submit a notification to the National Competition Commission before carrying out an economic concentration if it falls under the notification threshold. This means that the merger, acquisition, or consolidation is not legally completed (business changes have not been registered, ownership has not been transferred) until approval is received.

(Legal basis: Clause 1, Article 33 of the 2018 Competition Law.)

At what percentage of shares does acquiring a company constitute controlling ownership?

Controlling or dominating another business or a particular industry or profession occurs when it falls under one of the following cases:

1. The acquiring enterprise acquires ownership of more than 50% of the charter capital or more than 50% of the voting shares of the acquired enterprise;
2. The acquiring enterprise acquires ownership or the right to use more than 50% of the assets of the acquired enterprise in all or part of the acquired enterprise’s business activities;
3. The acquiring company has one of the following rights:

• Directly or indirectly deciding on the appointment, dismissal, or removal of the majority or all members of the board of directors, chairman of the board of members, director, or general director of the acquired enterprise;
• Decision to amend or supplement the charter of the acquired enterprise;
• Decisions on important business operations of the acquired enterprise include selecting the business organizational structure; choosing the industry, occupation, location, and business model; choosing adjustments to the scale and industry of the business; and selecting the form and method of mobilizing, allocating, and using the enterprise’s business capital.

Determining “control” is based not only on the percentage of equity ownership (usually over 50%) but also on decision-making power. A business is considered to have control when it holds ownership of more than 50% of the charter capital/voting shares; or has the right to appoint and dismiss a majority of the Board of Directors/managers; or has the right to decide on amendments to the Articles of Association and other important matters of the acquired business.

(Legal basis: Clause 1, Article 2 of Decree 35/2020/ND-CP.)

Do M&A transactions that take place overseas (offshore) need to be notified in Vietnam?

Yes. If the parties involved in the transaction (even foreign businesses) conduct business in Vietnam and meet the thresholds for total assets, total revenue, or market share in the Vietnamese market as stipulated, they are still required to notify the authorities of the economic concentration. However, the threshold for transaction value will not apply in this case.

(Legal basis: Clause 3, Article 13 of Decree 35/2020/ND-CP.)

How long does the preliminary assessment of an economic concentration take?

Within 30 days of receiving a complete and valid notification of economic concentration, the National Competition Commission will issue a notice on the preliminary assessment results. If no notice is issued within this period, the economic concentration is considered legal and the enterprise is permitted to proceed.

(Legal basis: Article 36 of the 2018 Competition Law.)

Is acquiring the assets of another company considered M&A?

Yes, if the purchase of the asset is sufficient for the purchasing enterprise to control or dominate the operations of the selling enterprise or a particular business sector of the selling enterprise. Simply purchasing liquidated assets without associated business rights/control is not considered an economic concentration.

(Legal basis: Clause 4, Article 29 of the 2018 Competition Law.)

>>> See more: Legal issues in M&A appraisal need attention

Conclusion

M&A activities require a deep understanding of competition law because mergers, consolidations, and acquisitions can significantly alter market structure. Enterprises need to carefully evaluate market share and transaction impact before proceeding.

For in-depth advice and support with notification procedures, please contact Long Phan Consultants via Hotline  1900636389.