M&A Asia: A practical view on issues for multi-country acquisitions

Companies can generate growth by acquiring other companies. The Ecovis experts explain which legal and tax aspects must be considered in M&A and how to use data rooms correctly.

Solving legal issues: Observe local laws

In terms of substantive matters related to an acquisition, working on a disclosure letter early in the process provides a safeguard for both parties, as any unforeseen points can then be discussed in time.

From the buyer’s point of view, it is always recommended that the lead advisor ensures that all items in the data room have been properly reviewed by local teams. Conflicts sometimes arise when the parties realise that some documents have not been properly reviewed according to local laws. Reading contracts from abroad is not recommended due to a possible lack of legal understanding.

Finally, it is not true that electronic signatures can be applied everywhere. Despite the existence of many great electronic solutions, in practice, ink signatures are still required. Contracting parties must take this into consideration.

Tax issues with M&A in Asia

In Asia, statutes of limitation can be long, and it is not unusual to see liability clauses applicable up to seven years in arrears. What does this mean? It could mean that the buyer may ask the seller to put cash deposits in place for years. Sellers are already unwilling to not be fully paid during one or two years due to post-completion commitments, etc. Often, an earn-out clause can solve the issue, but this depends on the parties.

Other issues must also be addressed: Is the sale of a company a sale of securities, taxed at lower levels? Or is it deemed a distribution of dividends for the seller, which could be taxed much higher? Should the Target company(ies) have been restructured prior to the transaction? Is the transfer of contracts to the buyer, in the case of a sale of assets (instead of selling shares), taxable? In which country? There are many tax considerations.

We know what special features to look out for with M&A in Asia and are happy to support you in your projects.

Pascal Thien-Ah-Koon, Attorney-at-Law, Managing Partner, TAK ASSOCIES – Member of ECOVIS International, Taipei City, Taiwan

Data room management prior to the takeover

One of the greatest safeguards for all parties when using digital data rooms is ensuring that all data room logs are downloaded regularly and kept safe in case of a dispute related to due diligence. Often, one party will accuse the other of not sharing a specific document, where the reality is that the document was uploaded, but the other party was either not informed, or just ignored that file. It is therefore essential to keep virtual data room logs to work out who is correct and who is liable.

One last recommendation concerning virtual data rooms is to keep file names short. Long computer names can result in files not properly being downloaded by the buyer’s teams, which can again result in legal conflicts.

Preparing for the acquisition (timing)

Selling a “clean” group will make the deal simpler, with fewer legal liabilities, condition precedents, pre-completion commitments and post-completion steps.

Therefore, the seller should consider restructuring their group at least one year earlier: closing some legal entities, setting up new ones, transferring contracts and staff, optimising the group from the tax and legal points of view, etc. This can all be a source of substantial cost savings.

For further information please contact:

Pascal Thien-Ah-Koon, Attorney-at-Law, Managing Partner, TAK ASSOCIES – Member of ECOVIS International, Taipei City, Taiwan
Email: pascal.tak@takassocies.com