Disputes in mergers and acquisitions are increasingly complex, involving parties from different countries with distinct cultures and legal backgrounds. This article outlines some basic characteristics of M&A activities, provides information about mediation activities, and explains why mediation is considered a comprehensive method for resolving disputes in M&A transactions.

Basic Characteristics of M&A

In recent years, the term M&A (mergers and acquisitions) has become quite familiar and popular in the business community. It can be said that M&A activities directly relate to business transactions, where companies unite in a "marriage" to achieve business objectives. Most parties in an M&A transaction voluntarily participate in the transaction with the aim of quickly growing market share, expanding operational scope, diversifying products, improving management systems, etc. The acquired party also benefits from accessing new technology and techniques.

M&A transactions are often associated with high-value transactions, ranging from millions to billions of US dollars, particularly involving multiple parties from different countries with diverse cultural and legal backgrounds. Practice shows that conflicts or disputes can occur at any point in the transaction: from the initial stage when both parties sit down to negotiate terms and conditions of the sales and purchase agreement to the completion stage and the stage of dealing with post-completion consequences.

Common Conflicts and Disputes in M&A

In the initial stage, conflicts often relate to violations of the memorandum of understanding (MoU/Termsheet) or letter of intent. At this stage, parties typically negotiate basic terms of the transaction, the expected transfer price (along with specific conditions), usually with exclusive negotiation provisions for a period (except in the case of auctions), and confidentiality agreements. Customarily, memorandums of understanding/letters of intent are not legally binding except for confidentiality obligations that must always be applied at any stage.

During the negotiation stage, conflicts often arise concerning many aspects, such as adjusting purchase prices, CPs which the seller must meet before completion (obtaining necessary permits, rectifying past mistakes, etc.), penalty terms for breaches, compensation for damages in case of breach, arrangements for handling deposits (in cases of deposits), assurances and warranties from each party, and corresponding consequences if the assurances and warranties are not accurate. Often, parties spend years with many efforts to negotiate terms of a contract that can meet the desires of both sides. There are cases where the buyer must simultaneously negotiate with many shareholders with different requirements and desires because the shareholders are not unified in certain needs and interests when negotiating the transaction. Sometimes, after negotiating a contract, on the signing day, a few shareholders change their minds causing extreme frustration for the buyer (for example, a foreign investor).

In the completion/post-completion stage, disputes are usually quite complicated as the parties have moved to a new phase; the seller has transferred, and the buyer may have taken over and directly operated the business. At this stage, the buyer has enough basis to inspect and may discover cases where reps and warranties are not true, may access complete records, and notice that certain initial conditions are not met, and thus may request a price adjustment... Such disputes are expected to be very complicated and prolonged if the parties cannot find common ground.

Common Features in M&A Disputes

High-value disputes: It can be seen that a common feature of disputes in M&A activities is that they are usually associated with high or very high-value disputes, directly related to the operations of businesses and not just the interests of one person but potentially tens, hundreds, or even millions of people (in the case of M&As involving multinational corporations with operations in dozens of different countries).

Complex nature of disputes: In addition, disputes in M&A are usually complex because they mostly relate to cultural differences and legal backgrounds. For example, the seller is Vietnamese shareholders, and the buyer is an enterprise from the Middle East. Negotiations face many difficulties due to language and cultural differences, gender discrimination, etc., making it very difficult to find common ground in the transaction.

Information confidentiality in M&A: Next, disputes in M&A often relate to confidential information that businesses never want to be disclosed to any third party. Therefore, usually, parties choose arbitration as the dispute resolution method in M&A. However, in recent years, resolving disputes through mediation mechanisms has been chosen by parties as an additional or alternative solution to arbitration because of the outstanding and convenient features of this method.

Commercial Mediation – A Suitable Dispute Resolution Method

What is commercial mediation, and why is it extremely suitable for resolving disputes in M&A activities?

Commercial mediation is a dispute resolution mechanism through a mediator who can support and promote the parties to find a solution that can resolve all conflicts based on the interests of both parties. The mediator is a neutral person who acts as an intermediary to bring both parties to a common interest. In mediation sessions, the mediator does not play the role of adjudicating or determining right or wrong but instead works to find common ground in conflicts to support the parties in finding a solution that can resolve the sticking points. With appropriate training and skills, the mediator will support the parties to look towards the interests and future of the "marriage" in the business to guide the parties to a solution that can harmonize the interests of both. The determination of right or wrong is not important, but the crux is what each party will gain or lose if the transaction is canceled.

The biggest advantage of mediation is the quick resolution, saving a lot of time and costs for both parties. For businesspersons, time and opportunity in business are money. When the parties are willing to resolve conflicts, disputes, no matter how complex, can be quickly resolved in just a few hours of direct discussion through goodwill. In contrast, if the dispute is resolved through litigation in court, the time can be "years" instead of "hours" at mediation sessions.

In addition, mediation is a completely a "double" confidential process; the information shared by the parties to the mediator is completely confidential: confidential to the other party and confidential to third parties unless the party disclosing the information allows the mediator to provide that information to the other party. Therefore, parties participating in mediation can completely rest assured to share the reasons behind their requests or desires. Thanks to this, the mediator can quickly help the parties to reach a comprehensive solution to the parties' requirements.

Finally, mediation is a flexible process, as the parties voluntarily participate and actively choose how to participate (parties are completely free to choose the location, time, and space for the sessions, and can even give up at any time if they feel uncomfortable), not obliged to follow any specific or rigid process, which creates the most comfortable psychology for the parties participating in the mediation process.

Why Commercial Mediation is Suitable for Resolving Disputes in M&A

When looking at the nature of conflicts in M&A transactions, it can be seen that both the seller and buyer want to proceed with the transaction and usually had invested a lot of time and costs for due diligence (including technical, financial, and legal reviews), contract negotiation (with the participation of experienced lawyers), and developing long-term strategies for mergers, acquisitions, or approaching a new management team. Therefore, terminating the transaction is the least desired outcome.

In reality, throughout the process from the beginning to completion, a lot of effort and consideration of harmonizing interests between both parties are required to reach the end of the journey of completing the transaction, because in M&A, most of the "gains" of one side are the "losses" of the other side. It will be difficult to find common ground if one side is only intent on protecting its interests.

Nowadays, mediation has become a common trend being incorporated into the official dispute resolution policies of multinational corporations. According to this trend, some corporations are required to consider mediation as a preliminary step before proceeding to litigation in court or arbitration. With its distinctive advantages, mediation has been and is being chosen by businesses as a method for resolving disputes in M&A agreements.

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This article was published on VMC's website and on Lexology at Link.