M&A in Thailand: key legal considerations for a successful deal

Thai law imposes foreign shareholding restrictions on certain types of business. The general foreign business law prohibits a foreigner from owning 50% or more of the total capital of a company engaged in restricted business activities (including trading, or the provision of services), unless they have obtained a proper foreign business license or are exempt under the regulations. Additionally, there are specific restrictions under other laws, such as those governing financial institutions, life and non-life insurance, transportation and telecommunications.

The Land Code also imposes restrictions prohibiting a foreigner from holding shares exceeding 49% of the registered capital of a company that owns land, or from having foreign shareholders comprising more than one-half of the total number of the company’s shareholders.

Exemptions may apply for businesses which qualify under applicable treaties, or through promotion by the Board of Investment or the Industrial Estate Authority of Thailand, among others.

Therefore, it is essential to understand the business activities of the target and whether the target owns land in order to determine the extent to which foreign shareholding restrictions will apply, whether any exemptions may be applicable, and to ensure you have an appropriate investment structure.

Depending on its business activities, the target may be subject to licensing and compliance requirements within the relevant regulatory regime. This may include specific licenses for business operations and other required permits. Collaborating with the target and stakeholders, and establishing close communication with local regulators, can provide valuable insights, identify emerging risks, and facilitate the development of effective strategies to address them.

Thailand's merger control regulations oversee merger and acquisition activities within businesses, encompassing control acquisition of assets or shares, as well as amalgamations. If a merger falls within the scope of these regulations, obtaining pre-merger approval from the Office of Trade Competition Commission (OTCC), or submitting a post-merger filing to the OTCC, may be necessary, contingent upon the merger's category (i.e. a merger that results in a monopoly, market dominance or substantially reduces competition). In this context, investors must have information regarding the target's financial performance and market share to conduct thorough analyses and comprehend potential implications.

It is worth noting that certain sectors, such as telecommunications and energy, are governed by their own specific merger control regulations, exempting them from the general rules.

Thailand's town planning law serves as a comprehensive framework governing the development and utilisation of land. However, instances often arise where designated locations and land usage deviate from the provisions of the town planning law, such as the establishment of a heavy factory within a densely populated residential zone. Addressing such discrepancies can pose significant challenges and should be promptly communicated to investors at the outset to mitigate potential complications.

In case the target is a listed company in Thailand, rules relating to the reporting of securities acquisition and disposition and tender offer will apply to (i) the increase or decrease of securities which in aggregate reach any multiple of 5 percent of the total voting rights and (ii) for an acquisition that will result in the holding of up to or exceeding 25%, 50% or 75% of the voting rights of such listed company. Exemptions may apply under certain circumstances.

Frequently, targets in Thailand are family-owned businesses which may have been operating for generations. Negotiating the purchase of such a business entails navigating unique interpersonal dynamics, given the various relationships at play. It is imperative to approach these negotiations with sensitivity and clarity, ensuring alignment of objectives between the family members and the prospective investor. Thorough due diligence is essential to uncover any financial, legal or tax issues, thereby enabling informed decision-making and mitigation of risks and liabilities that could potentially affect the business's operations or reputation.

Businesses are increasingly integrating sustainability considerations into their M&A strategies, acknowledging the significance of responsible business practices. In line with the Thai government's aspirations for carbon neutrality and net-zero greenhouse gas emissions, there is a notable transition across the nation towards ESG business models. This shift is reinforced by regulatory initiatives aimed at fostering ESG investing, such as guidelines for ESG-related disclosure and the Thailand Sustainability Investment (THSI) list, which identifies companies meeting the ESG criteria set by the Stock Exchange of Thailand. This growing emphasis on sustainability is evident in the rising demand for ESG due diligence as an integral part of the acquisition process.