M&A in Indonesia – Deal Structures, Approvals, and Post-Merger Licenses

Indonesia has become one of the most active M&A markets in Southeast Asia, supported by rising domestic consumption, rapid digitalization, and regulatory reforms designed to attract foreign capital. In 2024, Indonesia led ASEAN in deal value, accounting for more than US$4.8 billion in M&A activity in one quarter alone, and in the tech start-up sector specifically, there were 19 deals recorded worth around US$1.64 billion by September 2024. These figures highlight both the scale of opportunities and the competition for assets.

For foreign investors, acquisitions and joint ventures remain one of the most effective ways to enter the market, but success hinges less on available capital than on how deals are structured, the approvals secured, and the ability to manage compliance obligations after closing.

Choosing the right deal structure

The structure of a transaction determines how ownership is transferred, how risks are allocated, and how the investor ultimately gains control of the target. In Indonesia, companies can be acquired in several ways, ranging from straightforward share or asset purchases to more complex arrangements such as joint ventures, new share subscriptions, domestic mergers, and spin-offs. Each method offers distinct advantages and drawbacks, and the right choice depends on the investor’s objectives, the sector involved, and the regulatory framework governing foreign participation.

Share purchase

A share purchase allows the investor to acquire ownership of the target company by purchasing its existing shares. This approach ensures continuity of operations and avoids disruptions to contracts and licenses, but it also means assuming all liabilities, including those that may not be detected during due diligence.

Asset purchase

An asset purchase enables investors to acquire selected assets while excluding unwanted liabilities. This is effective when only part of a business is attractive or when the target carries significant risks. The drawback is that new licenses and tax registrations are usually required, delaying operational readiness.

Joint ventures through a PT PMA

Many foreign investors enter restricted sectors through joint ventures established under a PT PMA. These arrangements combine local market access with foreign capital but depend heavily on shareholder agreements. Weakly drafted agreements often lead to governance disputes, while strong agreements can provide a stable long-term structure.

Subscription to newly issued shares

Instead of buying existing shares, investors can subscribe to newly issued shares, injecting capital directly into the company. This approach is common when existing shareholders prefer growth capital rather than an exit. However, it can dilute existing ownership and requires careful negotiation of shareholding percentages.

Merger or consolidation

Indonesian company law recognizes mergers and consolidations as methods for combining entities. These are more common in domestic transactions because cross-border mergers are restricted. While they allow full integration, they trigger extensive regulatory review and often require license revalidation.

Spin-offs and carve-outs

Some businesses spin off specific divisions into new entities that foreign investors then acquire. This allows investors to isolate and acquire only the desired business line. The disadvantage is that the new entity must secure fresh licenses and permits, which can extend the transaction timeline.

Comparison of deal structures

Structure	Key Advantages	Main Drawbacks	Typical Use Case
Share purchase	Fast transfer, licenses, and contracts remain intact	Buyer inherits all liabilities	Suitable when continuity is essential
Asset purchase	Excludes unwanted liabilities, flexible scope	Requires new licenses and registrations	Useful when the target carries legacy risks
Joint venture (PT PMA)	Access to restricted sectors, local partner support	Risk of governance deadlock	Common in sectors with ownership caps
New share subscription	Injects fresh capital into the target, supports expansion	Dilution risk requires negotiation	Preferred when shareholders seek growth
Merger/consolidation	Full integration of entities, domestic consolidation	Cross-border restricted, heavy regulatory review	Domestic group reorganizations
Spin-off/carve-out	Isolates specific business units for acquisition	New entity must reapply for licenses	Attractive for acquiring only part of a business

 

Navigating Indonesia’s approval process

Before a merger or acquisition can be completed, investors must secure a series of regulatory approvals that are legally required before closing. These approvals determine whether the deal can proceed and include investment licensing, competition filings, sectoral reviews, and financing notifications.

Investment licensing is managed through the Online Single Submission Risk-Based Approach system, or OSS-RBA, which issues the business identification number and related permits. For foreign-owned companies, Indonesia requires issued and paid-up capital of at least 10 billion rupiah (US$650,000), as the baseline threshold for foreign participation under the Positive Investment List.

Competition approval also plays a decisive role. The Indonesian Competition Commission, known as KPPU, requires notification of transactions where combined assets exceed 2.5 trillion rupiah (US$162 million) or combined turnover surpasses 5 trillion rupiah (US$324 million).

The notification must be filed within thirty business days of closing, and penalties for failing to comply can reach 25 billion rupiah (US$1.6 million), along with the possibility that the deal may be unwound.

In regulated industries, sector-specific authorities exercise further oversight. Banking and insurance transactions require approval from the Financial Services Authority (OJK), energy and mining projects must be cleared by the Ministry of Energy and Mineral Resources, and telecommunications acquisitions are overseen by the Ministry of Communication and Information Technology.

Each regulator imposes its own review procedures and timelines, and overlooking these processes can result in severe operational delays.

Financing approvals demand similar attention, especially when deals involve cross-border shareholder loans or external debt. These arrangements must be reported to Bank Indonesia, which requires both monthly reporting and annual financing plans.

Non-compliance, even in the form of inaccurate or delayed filings, may result in restrictions on dividend repatriation, an issue that frequently creates unexpected difficulties for foreign acquirers.

Regulatory approvals matrix

To help boards visualize the regulatory landscape and approximate timeframes, the following matrix summarizes key regulators by sector, their typical approval obligations, and indicative timelines.

Regulator	Sector(s)	Approval / Obligation	Approximate Timeline*
BKPM / OSS-RBA	All sectors	Notification/issuance of NIB and basic licenses	10–30 business days
KPPU (Competition)	All sectors	Post-transaction notification if thresholds met	Within 30 business days of closing
OJK	Banking, insurance, capital markets	Ownership change approval, fit-and-proper tests	1–3 months
MEMR	Energy, mining	Permit revalidation or transfer	1–2 months
Kominfo	Telecommunications, IT	Spectrum and operating license approvals	1–2 months
Bank Indonesia	All sectors (financing)	Reporting of cross-border loans and external debt	Ongoing monthly and annual filings

*Assumes complete documentation; delays are common in practice.

Integrating compliance after closing

Once a transaction has closed and control has shifted to the new owners, compliance obligations continue in the form of post-merger integration. At this stage, the focus turns to updating licenses, managing labor and tax requirements, and revalidating permits to ensure the business can operate without disruption.

Companies must update their OSS-RBA records to reflect new ownership, and without these updates they may lose the ability to participate in tenders or obtain tax clearance. In regulated sectors, permits are often tied directly to the identity of the controlling shareholder, making revalidation of licenses a prerequisite for continued operations.

Human resource integration requires careful management, as labor costs and severance liabilities in Indonesia are significant. Under Government Regulation 35 of 2021, long-serving employees may be entitled to compensation ranging from 19 to 32 months of salary, while collective labor agreements can further limit restructuring flexibility.

The presence of expatriate managers or technical specialists adds another layer of compliance, since they must be covered by a foreign manpower utilization plan, supported with valid work permits, and registered under stay permits before they can be employed legally.

Tax integration is equally complex, requiring companies to harmonize corporate registrations and comply with transfer pricing rules that apply when related-party transactions exceed 50 billion rupiah (US$3.2 million). The Directorate General of Taxes scrutinizes post-merger arrangements closely, and companies that fail to prepare detailed documentation may face audits or disputes even when they are compliant in practice.

Environmental and operational permits must also be addressed, particularly in industries such as mining and energy. A change of ownership that alters operational control can require reissuance of environmental impact assessments (AMDAL), while many sectoral licenses are considered personal to the operator and cannot be transferred automatically.

Without planning, these requirements can suspend operations for months and reduce the value of the deal.

Due diligence as a safeguard

Because post-merger integration obligations are extensive, due diligence is critical to uncover risks before acquisition. Land rights must be carefully checked, as most Indonesian companies hold Hak Guna Bangunan rather than freehold ownership. This distinction places restrictions on the use of land by foreign investors. Tax records should be reviewed for compliance in corporate income tax, VAT, and withholding obligations to avoid inheriting liabilities.

Ongoing litigation and labor disputes must be evaluated, as they can result in costly settlements. Intellectual property ownership should also be verified, given that trademarks and patents are often registered under the names of founders instead of the corporate entity.

Strategies for maximizing deal value

Investors who succeed in Indonesia typically do so by anticipating regulatory challenges and planning integration before closing. Engaging with key regulators such as BKPM, KPPU, OJK, and Bank Indonesia well in advance allows investors to align transaction timelines with approval processes.

The choice of deal structure should be made with full awareness of the trade-offs between liability protection, licensing continuity, and operational readiness, recognizing that asset purchases can delay execution while share purchases expose acquirers to inherited obligations. Comprehensive integration plans covering HR, licensing, tax, and environmental compliance should be prepared before finalizing the transaction, ensuring that bottlenecks do not emerge after ownership has changed.

A practical example comes from the financial services sector, where share acquisitions remain the most common structure. Investors generally favor this route because banking and insurance licenses are difficult to obtain or reissue, and continuity is crucial for maintaining customer trust. By contrast, in the consumer goods industry, an international acquirer faced a six-month suspension of operations when permits had to be revalidated after closing, highlighting how licensing risks can erode deal value despite strong fundamentals.

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