Indonesia’s booming economy and strategic location in Southeast Asia have become a hotbed for business activity. This has fueled a surge in mergers and acquisition services, with companies seeking strategic partnerships and expansion opportunities.
One reason is that Indonesia is known for its strategic location, coupled with a young and growing workforce. Additionally, the region has established a dynamic market attracting both regional and international counterparts to capitalize on Indonesia’s vast potential.
Understanding mergers and acquisition services in Indonesia
Having knowledge of mergers and acquisition services (M&A) is crucial for business professionals in Indonesia. It enables you to effectively manage intricate legal procedures and make informed strategic choices in the corporate arena.
Besides the terminology, it is important to differentiate between mergers and acquisitions. To gain a better understanding, let’s elaborate on their differences.
Merger
A merger refers to a combination of two or more organizations in which only one company survives. This definition of a merger is also known as a statutory or legal merger.
Article 1, paragraph (9) of Law Number 40 of 2007 concerning Limited Liability Companies defines the concept of a merger. It entails the legal process undertaken by one or more companies to combine with an existing company.
This results in the transfer of assets and liabilities from the company merging first to the company receiving the merger.
Acquisition
When one company takes over another company, it’s known as an acquisition. The acquired company’s name continues to exist, but its ownership gets transferred to the acquiring company.
This process is known as a subsidiary merger. The definition of an acquisition is further defined in Article 1, paragraph (11) of Law Number 40 of 2007 concerning Limited Liability Companies.
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Regulatory framework for M&A in Indonesia
Indonesia’s regulatory framework for mergers and acquisition services is quite challenging to understand in a simple matter.
The government has put in place various complex instruments to ensure that M&A activities in the country adhere to the established guidelines.
- Law No. 40/2007 on Limited Liability Companies (as amended by
- Law No. 6/2023 on the Stipulation of Government Regulation No. 2 of 2022 in place of Law No. 11/2020 on Job Creation).
- Law No. 25/2007 on Investment as amended by the Job Creation Law
- Law No. 8/1995 on Capital Market, as amended by Law No. 4/2023 on the Development and Strengthening of the Financial Sector (PPSK Law)
- Government Regulation No. 27/1998 on Mergers, Consolidations and Acquisitions
- Presidential Regulation No. 10/2021 on Investment Business Fields as amended by Presidential
- Regulation No. 49/2021 on Amendment to Presidential Regulation of the Republic of Indonesia No. 10/2021 on Investment Business Fields.
Mergers and acquisition services involving publicly listed companies are also subject to regulations from the Financial Services Authority (Otoritas Jasa Keuangan or “OJK”) and the Indonesia Stock Exchange.
What do mergers and acquisition services do?
Mergers and acquisition services help companies navigate the complexities of acquiring or merging other businesses. A specialist guides the services with expertise in various aspects of deals. Therefore, this specialist or a consultant counts as a valuable advisor to the process.
Here’s a breakdown of their key functions:
Identifying targets and strategy
- Help companies identify potential acquisition targets that align with their strategic goals and growth plans.
- Conduct market research and industry analysis to assess target suitability.
- Develop a clear acquisition strategy outlining the rationale for the deal and potential synergies.
Transaction execution and due diligence
- Manage the negotiation process between the buyer and seller, ensuring a fair and beneficial deal for both parties.
- Perform comprehensive due diligence to evaluate the financial stability, legal status, and potential risks associated with the target company.
- Structure the transaction, including deal type (merger, acquisition, etc.), financing options, and valuation of the target company.
Post-merger integration
- After the finalized deal, assist with integrating the two companies’ operations, cultures, and systems.
- Develop a plan to manage employee relations, communication, and potential cultural clashes.
- Assist in facilitating a seamless transition and optimizing value generation from the merger or acquisition.
Additional services
- M&A consultants may also offer specialized services such as divestiture (selling off a business unit), spin-off (creating a new independent company), and joint venture formation.
- They can guide the legal and regulatory aspects of M&A transactions.
Key M&A trends in Indonesia
Based on the PwC report 2023, Indonesia’s mergers and acquisition services have fluctuated over the last ten years. In 2020, there was a significant decline due to the COVID-19 pandemic.
However, there was a rise in both the volume and value of M&A transactions in 2021 and 2022, surpassing pre-pandemic figures and reaching record levels in 2022.
M&A activity in Indonesia is primarily characterized by deals valued at less than USD 500 million yearly. For example, in 2021, only nine deals were valued above USD 500 million, while the number of deals below that amount reached 54.
In contrast, in 2022, the number of deals above 500 million remained the same as the previous year, with nine deals, whereas the number below USD 500 million surged to 132.
Key drivers of M&A activity in Indonesia
From the report mentioned before, it’s clear that mergers and acquisitions meet market needs. Now, let’s explore what’s driving M&A activities in Indonesia:
Tech industries
Indonesia’s tech industry is booming, with rapid growth even before the Omnibus Law. In the first half of 2017, M&A deals surged by 80%. Significant transactions involve Chinese giants like Tencent and Alibaba investing in Indonesian tech startups like GoJek, Linkaja, and Blibli.
State-Owned Enterprises (SOE)
SOE consolidation in Indonesia, driven by plans to reduce their number to 30 units, has reshaped the M&A landscape. Mining, energy, and healthcare sectors have consolidated significantly, fueling M&A activity.
Financial services and banking
In 2020, the Ministry of SOE established the Indonesia Financial Group (IFG) as a holding company to enhance its presence in the financial services sector.
Banking saw notable activity, with PT Bank Central Asia acquiring Rabobank Indonesia, Bangkok Bank acquiring Perata Bank, and BRI venturing into local insurance.
Key considerations of mergers and acquisition services
Before proceeding with mergers and acquisitions services, it’s important to consider a few factors despite the active M&A market.
Partner selection
Choosing the right partner is vital for successful M&A transactions. Poor decisions in this regard can lead to long-term harm and internal discord.
Trust
Mutual trust between management is essential for smooth mergers or acquisitions and positive outcomes.
Due diligence
Thorough due diligence is necessary to understand the target company’s history, values, and culture, aiding in proper valuation.
Strategic planning
A well-structured, mutually communicated plan backed by thorough analysis is essential for success. Third-party assistance can enhance this process.
Plan execution
Proper plan execution is critical for success, ensuring predicted costs are met and avoiding confusion between parties.
Integration speed
Maintaining connection and swift integration is key to long-term trust and overall success.
Guide to Doing Business in Jakarta
Choose mergers and acquisition services with InCorp Indonesia
Navigating the complexities of M&A can affect your company’s growth trajectory. Hence, securing tailored services to meet your needs is crucial for seamless progress.
With its extensive experience and trusted reputation, InCorp is a reliable advisor in Indonesia. It offers assistance not only in M&A processes but also in company registration.
By partnering with InCorp, you can direct your focus toward business growth while ensuring a smooth M&A journey and compliance with Indonesian regulations.
Pandu Biasramadhan
Senior Consulting Manager at InCorp Indonesia
An expert for more than 10 years, Pandu Biasramadhan, has an extensive background in providing top-quality and comprehensive business solutions for enterprises in Indonesia and managing regional partnership channels across Southeast Asia.
Frequently Asked Questions
Under Indonesian Company Law, shareholders can hold shares with various preferential rights, such as voting rights, nomination rights for board members, priority dividend or liquidation proceeds, and options for conversion or withdrawal after a set period.
A foreigner is not allowed to form a CV in Indonesia
Foreign investors need to have a minimum of IDR 10 billion in authorized capital, IDR 10 billion in paid-up capital, and IDR 1 billion in personal shares for applying for Investor KITAS/ITAS in Indonesia.
Shareholders must appoint a liquidator during the shareholders’ meeting approving liquidation. If no liquidator is appointed, the Board of Directors assumes the role. Creditors can submit claims within two years of the liquidation announcement, provided there are proceeds available. If proceeds have been distributed, shareholders must return them proportionally to settle creditor claims. Whereas employee termination packages vary based on employee status, service years, and reason for liquidation.
