Associate Nguyen Phuong Thao

Paralegal Cao Le Ngoc Anh

Notification of Economic Concentration (“EC”) is not a mandatory administrative procedure in all merger and acquisition (M&A) deals, but this is a prerequisite conditional procedure applying for deals with great value that are likely to cause anti-competitive effects on the market. In context of the increasing size and value of M&A deal, the number of deals reaching the threshold for implementing EC notification procedures is getting larger nowaday. With the purpose of adjusting EC activities before implementation, this is considered a "pre-inspection" step by state agencies to ensure healthy competition to protect the market competition. Although the Law on Competition 2018 has been in effect for nearly five (05) years and Decree 35/2020 guiding the Law on Competition has also been issued, in reality, EC procedure has some difficulties to implement.

In addition to the requirements for preparing documents according to the provisions of the Law on Competition, enterprises participating in EC may encounter difficulties when identifying, collecting data and explaining the following issues:

• Determining the threshold for EC notification based on the cumulative assets/revenue of the enterprises participating in the EC within the relevant market;

• Assessing the concentration level in the relevant market before and after the economic concentration; and

• Determining the market share and the relationship of the enterprises participating in the economic concentration within the production, distribution, and supply chain concerning a specific type of goods, services, or business sector, where the enterprises involved in the economic concentration serve as inputs to each other or complement each other.

In the process of assisting clients in transactions involving mergers and acquisitions ("M&A Transactions") that meet the threshold for EC notification, we have gathered various experiences regarding the handling of EC dossiers during the preliminary assessment phase and would like to share some of these practical insights for your reference.

1.    Determining the threshold for notification based on cumulative assets/revenue among companies in the seller's enterprise group

Under Law on Competition 2018, the threshold for EC notification is determined based on one of the following criteria:

1. The total assets in the Vietnamese market of the enterprises participating in the economic concentration;
2. The total revenue in the Vietnamese market of the enterprises participating in the economic concentration;
3. The transaction value of the economic concentration; or
4. The combined market share in the relevant market of the enterprises participating in the economic concentration.

Thus, if an enterprise meets any threshold, it is required to carry out the economic concentration notification procedure for M&A transactions, including internal restructuring transactions.

When considering the criteria of total assets or total revenue, the enterprises must calculate the cumulative value of the enterprise group of each party involved in the EC within the Vietnamese market. Please note that the enterprises need to compile a list of parent companies, subsidiaries, branches, representative offices, and commercial presences established outside and inside Vietnam for each party involving in the M&A Transaction. However, only the activities that generate revenue or assets and calculate the total value of revenue or total asset value earning in Vietnam of all companies within the group is calculated for determining threshold herein.

Notably, these figures shall be based on the fiscal year immediately preceding the year in which the EC is expected to be carried out.

2.   Determining a specific industry or service in the EC notification dossier to Vietnam Competition Commission (“VCC”) as the basis for calculating market share

After determining the threshold for conducting the EC notification, enterprises participating in the EC must have a detailed market share report, which must indicate the following:

1. How to select data to calculate market share; 
2. Method of identifying a key type of goods or services;
3. Method and method of calculating market share for that type of key goods and services; and
4. Methods and data to calculate total market share of the entire market.

Thus, according to our experience, we assess that the opinion of the competition management agency in the requirement to determine market share for a key type of goods or services is that each business will have competitive strength in a certain sector, so after introducing an overview of the business lines of the enterprise, it is necessary to point out the key business lines in which the enterprise mainly operates to generate revenue and gain position in the market.

3.     Some remarks on preparing documents

a.      Data

The issue of data is particularly important for explaining and reporting market share information, so participating enterprises may consider using the services of a vendor having market research functions to prepare documents.

For some cases of popular goods and services, enterprises can look up and use data from the General Statistics Office and other publicly available information sources such as annual statistical reports from various Associations of enterprises operating with the same investment capital or the same specific sectors and industries (for example, European Chamber of Commerce in Vietnam, Vietnam Steel Association, etc.).

 b.      List of document and document format

The volume of documents in the EC notification dossier is typically substantial and complex. Therefore, to ensure easy reference for the VCC, the enterprises conducting the EC notification should note the importance of clearly indicating the number of pages for each document and appropriately citing page numbers. Failure to comply with these formal requirements regarding the composition of the dossier or citation of page numbers may result in the dossier being subject to requests for supplementation or correction before it is officially reviewed and processed.

From the above discussions, we assess that the volume of data and the calculation methods are crucial factors in preparing the EC notification dossier. Therefore, before proceeding with the EC notification, enterprises involving in M&A Transaction need to clearly determine the notification thresholds, specific industries, and services to calculate their market share accurately ass well as thoroughly prepare data and documents to substantiate their dossier.

Here is our advice on Practice of conducting the procedures of economic concentration notification. As a professional corporate lawyer team in the field of investment, we are always ready to provide our clients with optimal solutions in terms of efficiency, cost, and simplified legal procedures. Please visit our DIMAC website and other News category to get the latest updates on legal advice and market experience sharing.