Mergers and Acquisitions in Indonesia in 2021

Despite unprecedented global events, there were strong signs of economic resilience in 2020, especially when it came to mergers and acquisitions in Indonesia. A projected $US2.3 billion changed hands in 2020, and Indonesia is set to come close to its 2016 high of US$4.6 billion in 2022 for mergers and acquisitions.

The technology, media, and telecom (TMT) sectors are the shining stars in the merger and acquisition space in Indonesia — startups are hungry for venture capital to foster growth, with notable success stories being Traveloka, Tokopedia, and Gojek.

Within the traditional business sectors, logistics, banking, and finance are all seeing merger and acquisition deals taking place at a growing rate.

Impressive growth aside, Indonesia is still a country with complex regulations. A great deal of research must be undertaken to ensure one optimises their deal-making, not to mention keeping on the right side of the law.

Let’s take a look at the primary considerations for mergers and acquisitions within Indonesia for 2021.

Recent Merger and Acquisition Developments for Indonesia in 2021

In mid-2018, the Indonesian Government introduced the online single submission (OSS) system, which was designed to expedite the process of acquiring business licences and permits concerning mergers and acquisitions.

While the OSS intends to make mergers and acquisitions far simpler, there is still the potential for a post-transaction audit by the Investment Coordinating Board (Badan Koordinasi Penanaman Modal – BKPM), so investors should be aware of the regulatory regime to mitigate risk.

More recently, Indonesia enacted the Omnibus Law to Eliminate Statutory Obstacles to Investment in October 2020, which amends or revokes a total of 78 laws and covers 27 topics and sectors to simplify the licensing process for investment in Indonesia. The Omnibus Law requires the government to issue implementing regulations in order to implement the relevant provisions under the Omnibus Law.

Also as part of the Omnibus Law, Indonesia will introduce a priority list to replace the existing Negative List, which restricts a large swathe of industry sectors from investment. This priority list has been referred to as a “positive list”. While the government still prepares the positive list, the existing Negative List still prevails.

Common Methods of Acquiring a Company in Indonesia

There are several ways to acquire an Indonesian company, the most common of which is by purchasing shares in a company either from a selling shareholder or the company as a whole. Asset acquisitions are becoming a more common form of company acquisition.

Other less common (but still acceptable) methods are mergers/amalgamations, where the existing company may be dissolved into the purchasing company.

In contrast, hostile bids are not standard, as most publicly-listed companies have a controller to approve any acquisition.

Restrictions on Foreign Investments in Indonesia

While the Omnibus Law effectively means the Negative List is no longer relevant, Indonesia still does have some restrictions on foreign direct investment (FDI), which are applicable depending on the industry sector involved, as follows:

• Cultivation and manufacture of class 1 narcotics
• Casinos and any other form of gambling activities
• The fishery of fish species listed in Appendix I to the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES)
• Any use or collection of coral, including natural coral, for building materials/lime/calcium, aquariums or souvenirs/jewellery, and any natural living or recent death coral
• Chemical weapons production

Applicable Laws and Regulations for Mergers and Acquisitions in Indonesia

Some of the most important laws and regulations on mergers and acquisitions in Indonesia are:

• Law No. 40 of 2007 — Limited Liability Companies (Company Law)
• Law No. 25 of 2007 — Investment (which only applies foreign investment)
• Law No. 5 of 1999 — Prohibition of Monopoly and Unfair Business Competition
• Law No. 13 of 2003 — Manpower
• Law No 8 of 1995 — The Capital Markets (Capital Markets Law) and other regulations issued by the Financial Services Authority (Otoritas Jasa Keuangan) (OJK)
• Various tax laws
• Any other regulations depending on the nature of the business

Documentation Required for a Merger and Acquisition in Indonesia

To acquire an Indonesian company, you will need the following documentation:

• Public acquisition announcement
• General Meeting of Shareholders (GMS) resolutions
• Sale and purchase agreement
• Deed of transfer
• Shareholders register
• A certificate of collective shares
• Approval from Ministry of Law and Human Rights and other relevant agencies
• Business Identification Number

To merge with an Indonesian company, you will need the following documentation:

• A merger plan
• Public merger announcement
• A deed of merger
• Shareholders register
• A certificate of collective shares
• Approval from Ministry of Law and Human Rights and other relevant agencies
• Business Identification Number

Process Overview for Mergers and Acquisitions in Indonesia

In most cases, the process for the merger or acquisition of a company in Indonesia will look like this:

• The acquiring company and the target company prepare a merger and acquisition proposal in the media to make the bid public
• The target company conducts an extraordinary general meeting of shareholders with the presence of at least 75% of shareholders
• Creditors approve the proposed merger and acquisition
• The merger shares conversion formula determines the fair market value through a valuation of shares
• Any relevant third parties (as required by law and agreements) give approval
• Relevant agencies (Ministry of Law and Human Rights, BKPM, OJK) approve the merging or acquirement of the companies
• All pertinent industry regulator gives approval (depending on the nature of the target company)

A merger or an acquisition usually takes at least 30 days to be completed in terms of regulatory requirements. In some cases, however, it may take longer due to the need for negotiation and due diligence.

Conclusion — Where to Next for Your Mergers and Acquisitions in Indonesia

While we’ve done our best to provide you with a brief overview of the mergers and acquisitions process in Indonesia, the process, in practice, is obviously in-depth and rife with complexities. While the Indonesian Government is to be commended for taking legitimate and healthy steps towards encouraging and simplifying investment, it is still a system with red tape and bureaucracy.

With the right advice, of course, the process can be very lucrative for all involved, given Indonesia’s growing economic status in Southeast Asia.

If you would like seasoned and trusted advice in identifying opportunities for mergers and acquisitions in Indonesia or help in achieving your existing strategic goals, Incorp has a comprehensive service covering valuation, negotiation, and completion, as well as financial audits and legal due diligence.

If you have any questions about how to initiate and successfully complete a merger or acquisition in Indonesia, please do contact us — it’s both our job and pleasure to assist.