The Role of Law, Compliance, and Policy in Shaping the Digital Economy

Merger and Acquisition in the Tech Sector: The Role of Law, Compliance, and Policy in Shaping the Digital Economy Presented by: Mr. Damanik Date: 13 February 2025 Brief Overview of M&A in Indonesia - Type of Normal M&A • Shares acquisition • Assets acquisition - Growth M&A (startup funding) - Process • Due diligence • Transaction document (e.g., sale and purchase agreement (SPA), subscription agreement, shareholders agreement (SHA)) • Completion A Typical M&A Transaction - Sign confidentiality letter - Agree letter of intent/heads of agreement/term sheet - Draft transaction documents (typically SPA, but sometimes also SHA). Typically, seller's counsel drafts. - Due diligence investigation by the buyer and its advisors - Various negotiation meetings to discuss the transaction documents - Sign transaction documents - Satisfy the conditions precedent in the transaction documents - Prepare completion steps (corporate resolutions, power of attorney, payment instructions, deeds of transfer, etc.) - Complete the transaction by transferring the shares and fund the purchase price - Post-completion steps (for example: amend board compositions, change signatories to bank accounts) Indonesian Legal Framework - No specific tech-related M&A regulation in Indonesia - M&A in tech sector may intersect with the following regulations (as applicable): • Company law • Data protection law • Telecommunication law • Private electronic system operator regulation • Foreign investment rule Key Challenges – Timing - Acquisition process takes some time in Indonesia - Notice of acquisition must be issued in one newspaper and a notice to employees must be given 30 days prior to a shareholders' meeting to approve the acquisition - Share acquisition or share transfer deed must be signed before a notary in Indonesia - Change of control exercise may subject to a notification or consent from the authority (depending on the sector) - DD on tech companies is not always easy Key Challenges - Foreign Investment Rules - Several business sectors in Indonesia are closed or opened with certain restrictions - Minimum paid-up and issued capital of IDR 10 billion (around USD 600,000) - Investment value of more than IDR 10 billion (around USD 600,000) per business line - Articles of association and licensing may need to be updated for conversion from local to foreign investment company Key Challenges – Others - Data protection • Complying with data privacy related requirements in an M&A • Awaiting the determination data protection authority and the issuance of implementing regulation - Merger control • Requiring post-transaction notification - long determination period • Thresholds - first step in any transaction analysis; pre-closing voluntary consultations with the authority - - Intellectual Property • Share acquisition vs asset acquisition • Is IP registered in the name of company? founder? employee? not registered? Employment • Any detrimental changes to the existing terms of employment may trigger employee's right to terminate • No automatic transfer of employment mechanic in an asset acquisition employees must agree Recommendation - Tech companies are frontrunners, pushing the boundaries of technology, business but also the regulatory framework - DD on these companies is not always easy. - Hence, tension with regulatory environment is almost inherent. - Requiring them to comply with the letter of the law, might commercially be counterproductive. - Good relationships and regular dialogue with regulators is important. - Investors do generally know this and take calculated risks.