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Mergers and Acquisitions in Thailand
20/05/2024
In the modern business environment, mergers and acquisitions (M&A) play a significant role in driving growth, expanding market presence, and consolidating resources. This blog post will explore the legal aspects of M&A transactions in Thailand, and provide information on the specific considerations and regulations that govern these processes.
Key points
- Share acquisitions, asset transfers, and amalgamations are the main legal structures for M&A transactions in Thailand.
- Conducting thorough due diligence is crucial when acquiring a company to assess risks, liabilities, financial health, and legal compliance.
- Drafting a comprehensive purchase/share transfer agreement is essential, covering aspects like party details, sale terms, warranties, and closing processes.
- Regulatory approvals or notifications may be required in certain industries or for specific types of transactions.
- Foreign ownership restrictions outlined in the Foreign Business Act must be considered, especially for foreign investors acquiring Thai companies.
What is mergers and acquisitions?
M&A stands for Mergers and Acquisitions. It refers to the consolidation of companies or assets through various types of financial transactions.
Mergers occur when two separate companies combine to form a new, joint organisation. An acquisition, on the other hand, is when one company purchases another company or just a portion of the target company’s assets or operations. However, in practice we use the terms M&A to represent both options but in 99% of the cases it is actually an acquisition of one company by another company.
What are the Advantages of mergers and acquisitions?
Some of the key advantages of M&A are as follows:
- It allows companies to grow revenue, acquire new talent/technology, increase market share, and expand product lines.
- Common drivers include synergies that create greater value from combined operations, entering new markets, tax considerations, and economies of scale.
- Major forms include horizontal integration of competitors, vertical integration of supply chains, and conglomerate transactions across unrelated industries.
- The transactions typically require significant due diligence, deal structuring, regulatory approval, and integration planning.
- High M&A activity is often viewed as a sign of confidence in the economic/market climate by companies having available capital to invest.
What are the Different Options for M&A?
Mergers and acquisitions can take many different forms depending on the goals, industries, and deal structures involved. Companies have several different options when it comes to M&A. Whether it’s a full merger between equals, an acquisition by another company, a divestiture of certain assets, or a strategic alliance, there are various paths that can be taken.
In this section, we’ll explore the various M&A deal types.
Share Acquisition
When it comes to acquiring a business or company in Thailand, the most commonly utilised structure is the acquisition of shares. This approach offers flexibility, simplicity, and efficiency in transferring ownership and control. Share acquisition can be categorised into two main types:
- the acquisition of existing shares and
- the acquisition of new shares.
Acquisition of Existing Shares of a Company
Private Limited Companies
In Thailand, private limited companies allow for the transfer of shares without any pre-emptive rights or restrictions, unless specified otherwise in the company’s articles of association (AOA) or shareholders’ agreement. Share transfer instruments, which can be executed in any language, are used to facilitate the transfer process. Once the transfer is recorded in the company’s share register book and the updated list of shareholders is submitted to the Department of Business Development, the transfer becomes valid against the company and third parties.
Public Limited Companies
Similar to private limited companies, public limited companies in Thailand generally do not impose restrictions on share transfers unless they are necessary for preserving the company’s rights or maintaining the shareholding ratio between Thais and foreigners. Shareholders agreements or joint venture agreements should be reviewed for any specific restrictions on share transfers. In the case of publicly listed companies, an acquisition of shares may trigger mandatory tender offers if the acquirer reaches certain thresholds of total voting rights.
Acquisition of New Shares of a Company
Private Limited Companies
M&A transactions involving private limited companies may also include the acquisition of new shares. However, private limited companies can only issue new shares through a rights offering to existing shareholders, with unsubscribed shares potentially being offered to other existing shareholders. If an investor who is not an existing shareholder wishes to acquire new shares, they must first become a shareholder by acquiring a certain amount of existing shares, followed by a capital increase by the company.
Public Limited Companies
Unlike private limited companies, public companies can conduct capital increases through third-party allotments of shares. However, a subscription of newly issued shares in publicly listed companies may trigger mandatory tender offers. Exemptions to these requirements are possible through a whitewash process, subject to certain conditions.
Business Transfer
Another approach to acquiring a business in Thailand is through a business transfer, which involves the acquisition of assets and liabilities from the target entity. This method allows the acquiring entity to be selective in acquiring specific assets and liabilities, tailoring the transaction to their needs. While share acquisitions offer simplicity, asset transfers may involve more legal formalities, such as registration, applications, and consents, depending on the nature of the assets being acquired.
Complexities may arise in regulated industries, where permits and licenses need to be transferred or reapplied for. Additional requirements, such as minimum capital or Thai shareholding ratios, may need to be met to hold certain permits and licenses. Transferring employees from the target entity to the acquiring entity may also require separate consent from each employee. Corporate approvals from the board of directors and/or shareholders of both entities are necessary for implementing an asset transfer. Listed companies have stricter requirements, subject to regulations issued by the Stock Exchange of Thailand and the Capital Market Supervisory Board.
Amalgamation
While mergers are recognized structures in many jurisdictions, they are currently not permitted under Thai law. Amalgamation, on the other hand, is a legal concept applicable to both private and public limited companies in Thailand. Amalgamation involves the consolidation of two or more companies into a new merged entity, which assumes the rights and obligations of the merging companies.
Amalgamation of Private Limited Companies
To amalgamate private limited companies, a special resolution of shareholders is required. The amalgamation must be advertised in a local newspaper, and creditors must be notified, allowing them 60 days to raise any objections. If objections are raised, the company cannot proceed with the amalgamation until the claim is satisfied or sufficient security is provided. After meeting these requirements, a joint meeting of shareholders is held to consider various matters related to the incorporation of the new company. Registration of the amalgamation with the Ministry of Commerce finalizes the process, resulting in the dissolution of the amalgamating companies and the establishment of the new merged company.
Amalgamation of Public Limited Companies
Similar to the amalgamation of private limited companies, the amalgamation of public limited companies requires special resolutions from the shareholders’ meetings of each company involved. In cases where minority shareholders object to the amalgamation, the public company must arrange for the purchase of their shares, based on the last traded price if listed or determined by an independent valuer if unlisted.
If minority shareholders refuse to sell their shares, they become shareholders of the new company formed by the amalgamation. The amalgamating company must notify its creditors and publish the notice in a local newspaper, addressing any objections raised. A joint meeting of shareholders is then held to determine matters such as share allotments and the capital of the new company. Registration of the amalgamation leads to the dissolution of the amalgamating companies and the transfer of rights and liabilities to the new company.
Considerations and Additional Requirements
While share acquisitions, business transfers, and amalgamations provide viable pathways for M&A transactions in Thailand, certain industries and business operations have specific requirements and regulations. Prior approval or notification from regulatory authorities may be necessary before proceeding with a transaction. Compliance with these requirements is essential to ensure a smooth and legally sound acquisition process.
It is important to note that changes in shareholding, control, or licenses may impact the qualifications and obligations of a company, particularly in relation to foreign ownership restrictions. The Foreign Business Act governs foreign ownership of businesses in Thailand, and compliance with its provisions is critical for foreign investors. Legal due diligence is recommended to assess the impact of these restrictions and ensure compliance with Thai laws.
What is Due Diligence When Buying a Company in Thailand?
Much like when you perform due diligence for purchasing a property, conducting thorough due diligence is important when buying an existing business. Undertaking due diligence allows you to verify key details and assess the potential risks and opportunities associated with the target company.
When undertaking due diligence, investors should focus on the following areas:
Company Registration Details:
Review the company’s registration details, including its legal status, current shareholder list, and directors.
Liabilities:
Identify whether there are any pending legal actions or significant liabilities involving the company that the new owners would be responsible for. For example, debts, taxes, contractual obligations and legal claims.
Financial Analysis:
Examine the company’s financial balance sheets, bank statements, and tax records to assess its financial health and stability.
Contracts and Obligations:
Evaluate all contracts and agreements signed by the company, including employment contracts, vendor agreements, and lease agreements.
Legal and Regulatory Compliance:
Inquire about any potential legal disputes, pending lawsuits, or outstanding tax liabilities that the company may be facing.
Drafting and Reviewing a Purchase Agreement
Once the due diligence process is complete, the next step is to draft and review the business purchase agreement or share transfer agreement. These are legally binding agreements that outline the terms and conditions of the sale and ensure a smooth transfer of ownership. Here are key elements typically included in such agreements:
Party Identification:
Provide the legal names and contact information of the buyer and seller at the beginning of the agreement.
Business Description:
Include an overview of the company, its operations, and the seller’s legal authority to authorize the sale.
Financial Terms:
Specify the purchase price, any deposits required, and the date and time of the transfer.
Sale Details:
Define the type of sale, including the assets included and excluded from the transaction, such as equipment, property, and intellectual property rights.
Covenants:
Outline the seller’s obligations surrounding the closing, including tax obligations, loan repayments, employee benefits, and non-competition agreements.
Transfers and Obligations:
Clarify the responsibilities of the buyer and seller, including the buyer’s role, employee training, and customer obligations.
Closing Process:
Detail the logistics of the closing process, including the date, time, and location, as well as the transfer of title and payment arrangements.
Warranties:
Include warranties that ensure compliance with applicable laws and regulations, as well as the payment of taxes and other financial obligations.
How can Belaws help?
For more information about mergers and acquisitions in Thailand, why not talk to one of our experts now?
Please note that this article is for information purposes only and does not constitute legal advice.
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Frequently asked questions
What is meant by merger and acquisition?
M&A stands for Mergers and Acquisitions. It refers to the consolidation of companies or assets through various types of financial transactions. Mergers combine equals, while acquisitions involve one company buying another.
What are the advantages of M&A?
- Grow revenue and market share
- Acquire new talent and technology
- Enter new markets
- Increase efficiency and innovation
What are the different options for M&A in Thailand?
- Share Acquisition: Buying shares of a company (most common)
-Existing shares
-New shares (complex for private companies) - Business Transfer: Acquiring specific assets and liabilities
- Amalgamation: Combining two or more companies into a new entity (not the same as a merger)
What are some considerations for M&A in Thailand?
- Due diligence is crucial to assess risks and opportunities.
- Regulatory approvals may be required depending on the industry or transaction type.
- Foreign ownership restrictions apply (consult the Foreign Business Act).
What is due diligence?
A thorough investigation of the target company to assess its financial health, legal compliance, and potential risks. Key areas include:
- Company registration details
- Liabilities
- Financial analysis
- Contracts and obligations
- Legal and regulatory compliance
What is the merger control threshold in Thailand?
Thailand currently does not have a specific merger control threshold. However, pre-merger filing with the Trade Competition Commission (TCC) is mandatory if:
- Any business operator has a dominant market position (defined as 50% market share and THB 1 billion annual turnover, or the top three operators have a combined 75% market share and THB 1 billion turnover)
- The combined annual turnover of the merging parties is THB 1 billion or more (but does not create a monopoly)
What is amalgamation in Thailand law?
Amalgamation is a legal process where two or more companies combine to form a new, single entity. Unlike mergers (which are not yet recognized in Thailand), amalgamation results in the dissolution of the original companies.
What is an example of a merger and acquisition?
An example of a merger could be two large banks combining their operations into a single, stronger entity. An acquisition example might be a tech company buying a smaller startup to gain access to its technology or talent.
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