Splitting signing and completion in a Vietnamese M&A transaction — typically mandatory where the deal requires competition or investment regulatory approval — creates a risk gap that a buyer needs to control carefully through conditions precedent and MAC clauses.
This briefing, prepared by IVLF Advisors’ M&A advisory team, analyses how to design conditions precedent, MAC clauses and risk allocation between the parties during this transition period.
Conditions precedent: classifying by controllability
Conditions precedent (CPs) should be classified by which party can control satisfaction: CPs within state authority (merger control clearance, foreign investment approval) are outside either party’s control; CPs that are the seller’s obligation (internal restructuring, releasing asset encumbrances) are within the seller’s control; a no-material-adverse-change CP depends on an objective assessment of business conditions. Clear classification helps determine which party bears responsibility if a CP is not satisfied on time.
MAC clauses: defining “material adverse change” against measurable thresholds
A material adverse change (MAC) clause allows a buyer to withdraw if a material adverse change affects the seller’s business between signing and completion. Since “materiality” has no uniform definition under Vietnamese law, good practice ties the MAC to a specific financial threshold (e.g., a revenue or EBITDA decline exceeding a stated percentage) rather than leaving it open to subjective interpretation — reducing the risk of disputes over whether a MAC event has occurred.
Interim covenants during the transition period
The contract should clearly set out the seller’s obligations between signing and completion: maintaining ordinary course of business, not entering into high-value contracts or altering capital structure without buyer consent, and not making distributions beyond the ordinary course. Breach of these covenants is typically structured as an additional CP or a separate basis for indemnity.
Penalty caps under the 2005 Commercial Law and break fee structuring
For break fees payable when a party withdraws without proper cause, note that the 2005 Commercial Law caps contractual penalties for commercial contracts at 8% of the value of the breached obligation, unless foreign law applies or the break fee is structured differently (e.g., as a deposit or liquidated damages) to avoid this cap. This is a point to discuss carefully with counsel when negotiating the break fee level.
The 2018 Competition Law’s role in setting the long-stop date
For deals subject to merger control notification under the 2018 Competition Law, the National Competition Commission’s review period is a factor to build into the long-stop date (the final date for completion before either party may terminate). The long-stop date should carry sufficient buffer to avoid automatic deal termination while a clearance application is still being processed on a normal timeline.
Counsel’s view: For deals with CPs subject to state authority, structure the long-stop date with at least one automatic extension if the application is proceeding on a normal timeline, rather than a hard deadline that risks collapsing the deal for administrative reasons outside either party’s control.
Frequently asked questions
How should a MAC clause be defined to reduce disputes?
Tie it to a measurable financial threshold (e.g., revenue/EBITDA decline percentage) rather than a general “materiality” concept.
Is there a cap on break fees in Vietnam?
Yes, if structured as a commercial contract penalty, capped at 8% under the 2005 Commercial Law, unless a different structure or foreign law applies.
What should the long-stop date account for when merger clearance is required?
The National Competition Commission’s review period under the 2018 Competition Law, with sufficient buffer.
IVLF Advisors’ M&A advisory team helps businesses design conditions precedent and allocate signing-to-completion risk in line with Vietnamese practice. Speak with our team about your deal structure for tailored advice.
MAC Clause Risk Checklist
A MAC Clause should define measurable events, exclusions, materiality thresholds and the burden of proof. A carefully drafted MAC Clause can protect a buyer without creating an unrestricted walk-away right.
Parties negotiating a MAC Clause should coordinate it with conditions precedent, warranties, termination rights and long-stop dates. Consult our Vietnam M&A lawyers and the Vietnam legal database.
A MAC Clause review before signing helps identify ambiguous triggers and commercially unrealistic remedies. MAC Clause advice is valuable where signing and completion occur on different dates.
This article is provided for general information only and does not constitute legal advice for any specific case. Regulations may change – please consult a qualified professional before acting. Should further analysis be required, please contact one of our lawyers below.
