Mergers & Acquisitions in Bangladesh

The history of M&A in Bangladesh can be broadly divided into three phases. The first phase, spanning from independence in 1971 to the early 1990s, was characterized by limited M&A activity, primarily involving state-owned enterprises and occurring within the context of nationalization and subsequent privatization efforts.

The second phase, from the mid-1990s to the late 2000s, witnessed the emergence of more market-driven M&A transactions, particularly in the banking, telecommunications, and manufacturing sectors.

The third and current phase, beginning in the early 2010s, has seen a substantial increase in both the volume and sophistication of M&A transactions in Bangladesh.

The current M&A landscape in Bangladesh is characterized by several key trends. First, there has been a notable increase in cross-border transactions, with foreign investors from countries such as Japan, China, India, Singapore, and various European nations acquiring stakes in Bangladeshi companies.

Second, certain sectors have emerged as particularly active areas for M&A. These include financial services (especially banking and insurance), telecommunications, pharmaceuticals, consumer goods, textiles and garments, power and energy, and more recently, technology and e-commerce.

Third, there has been a gradual shift from purely strategic acquisitions to more financially motivated transactions, with private equity firms and other financial investors becoming increasingly active in the Bangladeshi market.

The Companies Act 1994 is the primary legislation governing corporate entities in Bangladesh and provides the basic framework for mergers and acquisitions. It contains provisions relating to corporate restructuring, including schemes of arrangement, amalgamations, and reconstructions.

The Competition Act 2012 regulates anti-competitive practices and merger control. It requires notification to the Bangladesh Competition Commission for transactions that meet certain thresholds and prohibits transactions that may substantially lessen competition in the market.

The Securities and Exchange Ordinance 1969 and the Securities and Exchange Commission Act 1993, along with various rules and regulations issued by the Bangladesh Securities and Exchange Commission (BSEC), govern M&A transactions involving publicly listed companies.

The Registrar of Joint Stock Companies and Firms (RJSC) is responsible for registering companies and maintaining corporate records. Any changes to a company's structure, including those resulting from M&A transactions, must be filed with the RJSC.

The Bangladesh Securities and Exchange Commission (BSEC) regulates the securities market and oversees M&A transactions involving publicly listed companies. It enforces disclosure requirements, approves share transfers, and ensures compliance with securities laws.

The Bangladesh Bank (the central bank) regulates financial institutions and foreign exchange transactions. Its approval is required for M&A transactions involving banks, non-banking financial institutions, and transactions with foreign exchange implications.

Share acquisitions involve the purchase of shares in a target company, resulting in the acquirer gaining control over the target. This is the most common form of M&A transaction in Bangladesh, particularly for private companies.

In a share acquisition, the acquirer steps into the shoes of the selling shareholders and indirectly acquires all assets and liabilities of the target company. This structure is relatively straightforward from a legal perspective but requires careful due diligence to identify any hidden liabilities.

For publicly listed companies, share acquisitions may trigger mandatory tender offer requirements under the Securities and Exchange Commission (Substantial Acquisition of Shares and Takeovers) Rules 2018 if certain thresholds are met.

Asset acquisitions involve the purchase of specific assets (and sometimes liabilities) of a target company rather than its shares. This structure allows the acquirer to cherry-pick desired assets and avoid unwanted liabilities.

However, asset acquisitions in Bangladesh can be complex and time-consuming due to the need to transfer each asset individually, obtain third-party consents, and comply with various regulatory requirements. They may also have less favorable tax implications compared to share acquisitions.

Asset acquisitions are often used in distressed situations or when the acquirer is only interested in specific business units or assets of the target company.

Legal due diligence typically covers corporate matters, contracts, regulatory compliance, litigation, employment, intellectual property, and real estate. In Bangladesh, particular attention should be paid to land ownership and title issues, as land records can be complex and sometimes unreliable.

Regulatory compliance is another critical area, given the multiple regulatory bodies overseeing different aspects of business operations in Bangladesh. Non-compliance with regulatory requirements can result in significant liabilities and operational disruptions.

For family-owned businesses, which are common in Bangladesh, it's important to verify that all corporate formalities have been observed and that there are no undocumented arrangements or understandings among family members that could affect the transaction.

Financial due diligence involves a detailed review of the target's financial statements, accounting practices, tax compliance, and financial projections. In Bangladesh, it's common to encounter differences between statutory financial statements and management accounts, as well as variations in accounting practices.

Tax compliance is a particularly important area, as the tax regime in Bangladesh is complex and enforcement has been increasing in recent years. Unpaid taxes, including withholding taxes, can result in significant liabilities for the acquirer.

Working capital analysis is also crucial, especially in sectors with seasonal fluctuations or long cash conversion cycles, which are common in Bangladesh's manufacturing and export-oriented industries.