Well-capitalized firms looking to expand are currently faced with an aberrant opportunity to make acquisitions and consolidate power. As the pandemic continues to take its toll on the economy, weaker business actors in Indonesia receiving handouts via government support schemes or dipping into their cash reserves could be fast approaching a state of deeper financial distress, leaving them open for takeovers.
Due to its large population, economic growth, and untapped potential, the vast majority of Merger & Acquisition (M&A) deals in Indonesia are led by foreign investors. The most recent and prolific M&A deals in Indonesia include Singapore internet giant – SEA’s acquisition of Indonesian Bank BKE and the much talked about Go Jek and Tokopedia merger.
To further improve Indonesia’s investment climate, the Indonesian government enacted the Omnibus Law in October 2020. As part of the Omnibus Law, it introduced a ‘Positive Investment List” which relaxes foreign ownership limitations from a large swathe of sectors. Nonetheless, foreign investors looking to merge or acquire Indonesian companies should still observe the foreign ownership composition of these sectors.
To improve the investment climate, the Omnibus Law amends 73 laws, consisting of 15 chapters and 174 articles. Business actors can expect both large and small (but important) changes in the way business will be done in Indonesia. Firms entering Indonesia should exercise caution and due diligence, to achieve their goals and maximum shareholder wealth from the deal.
Foreign investors should also note the several laws that regulate M&A activities in Indonesia. The general M&A requirements, provisions, and procedures can be referred to as Indonesia’s “Company Law” (Law No 40 of 2007). The ‘Company Law’ outlines the four types of M&A transactions found in Indonesia;
|Indonesia Competition Law
Business competition in Indonesia is regulated by the Indonesian Competition Law and administered by the KPPU. A written notification of M&A(s) to KPPU is mandatory, if the surviving business entity’s asset value exceeds IDR2,500,000,000,000.00 (two trillion five hundred billion rupiah) or, exceeds a sales value of IDR5,000,000,000,000.00 (five trillion rupiah). Businesses in the banking sector, however, have a lower threshold.
Late notifications filed will incur a penalty of IDR 1 billion each day. The prior cap of IDR 25 billion is eliminated as part of the Omnibus Law, and therefore makes it crucial for investors to decide the effective date of the transaction to prevent unknown penalties.
During this time, Employees are also entitled to choose whether to continue working for the surviving company, In cases where an employee chooses to resign, severance payment may be provided based on the employment agreement.
|Omnibus Law Labor Regulations
Government Regulation Number 35 Year 2021 (GR 35) concerning Temporary Work Agreement, Outsourcing, Working and Resting Hour, and Employment Termination, is effective as of 2 February 2021
Below is an overview of reasons for termination and its respective severance package.
|Employee is unwilling to continue employment or vice versa due to the following:||Severance payment||Long Service||Compensation Rights|
|Merger & Acquisition or Spinoff||1 Time||1 Time||Eligible|
|Company closure (not due to loss)|
|Debt suspension (not due to loss)|
|Company takeover (resulting in a change in scope of work)||0.5 time|
|Company closing (due to loss for 2 consecutive years)|
|Debt suspension (not due to loss)|
|Force Majeure (which did not cause company closure)||0.75 times|
Each event that takes place during the pre-closing stage may require certain documents. During this stage, the following steps are to be undertaken:
This is the final stage of your direct acquisition and your final steps in a successful acquisition.
This stage will be complete when registration is carried out at the Ministry of Trade’s Company Registry. This step is required to amend the necessary company data.
As the global economy recovers from the Covid-19 pandemic, we will see a wave of M&A activity. Well-prepared firms with the right advice, can avoid these common traps and navigate Indonesia’s business landscape with ease.
If you would like seasoned and trusted advice in Indonesia, Cekindo has a comprehensive service covering valuation, negotiation, and completion, as well as financial audits and legal due diligence.
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