Hello. In recent years, Uzbekistan has been attracting a lot of attention as a growth market in Central Asia. With abundant natural resources and a young population, many foreign companies are considering entering the market through M&A.

However, as a former Soviet republic with unique business practices and legal systems, M&A in Uzbekistan will not be successful without prior preparation and research. This article will provide a detailed explanation of all the points that foreign companies should pay attention to when carrying out M&A in Uzbekistan, from local circumstances to common international issues.

The Core of M&A in Uzbekistan: Three Super Important Points

1. Dealing with the complexity of the legal system : Understanding foreign company certification (e.g., capital of 400 million soums or more) and industry-specific regulations is an absolute requirement .
2. Thorough due diligence : A thorough investigation of legal, financial, tax and human resources in line with local practices is key to uncovering hidden risks.
3. Neglecting cultural and personnel integration is a recipe for failure : Value creation after an acquisition depends on how well local key people and corporate culture are respected.

By process: Specific points to note when conducting M&A in Uzbekistan

1. Planning and preparation stage

• Early assignment of experts : Local legal, accounting and M&A advisors are your first port of call. Without their network and know-how, it can be difficult to identify the right targets.
• Check foreign investment restrictions : If the target industry is related to national security or critical infrastructure, investment restrictions or special approvals may be required.

2. Due diligence stage

• Financial "hidden debts" : You need to carefully check whether there are any off-book debts or disputes with the tax office over unpaid taxes.
• Legal and contractual risks : Check whether there are any issues with major business contracts and asset ownership (especially land), and whether there is a history of past litigation.
• Personnel risks : Evaluate unpaid social insurance and overtime payments, the existence of unfavorable labor contracts, and the risk of key personnel leaving .

3. Negotiation and contract signing stage

• Clarifying warranty and indemnity clauses : The core of the negotiations is the extent to which the seller should provide warranty and indemnity for risks discovered during due diligence.
• Price adjustment clause : It is common to include a PPA (Purchase Price Adjustment) clause that adjusts the final purchase price depending on changes in financial conditions between the time of signing and closing.

4. Integration (PMI) Phase

• The importance of communication : After an acquisition, employees will have significant uncertainty. Build trust by communicating early and honestly about the management vision and whether there will be any job cuts.
• Cultural integration : Rather than unilaterally imposing the methods of the Japanese headquarters, we need to adopt good local customs and work together to create a new corporate culture.
• Management retention incentives : Offer key personnel performance-based compensation or a retention bonus after several years of service to help them stay.

[More broadly] Common points to note when foreign companies engage in M&A

We will also introduce points to be aware of when conducting overseas M&A in general, not just in Uzbekistan.

1. Political and regulatory risks :
   • There is a risk that preferential policies for foreign investment may change due to a change in government, or that transactions may be blocked for security reasons (e.g., CFIUS review in the US, Foreign Direct Investment Screening Mechanism in the EU). Prior research is essential.
2. Exchange risk :
   • When settling the acquisition price and remitting the profits afterwards, unexpected costs may arise due to fluctuations in exchange rates. Consider taking measures such as currency hedging.
3. Cross-cultural management :
   • Friction due to cultural differences frequently occurs, such as "decision-making is slower than expected" and "there is no culture of reporting, communicating, and consulting, so it's difficult to see the local situation." It is more important than anything to question the common sense of your own country, learn about, understand, and respect the differences in advance .
4. Overestimating integration synergies :
   • Don't be overly optimistic about cost savings and revenue synergies. Integrations often involve unexpected costs and time. Prepare multiple conservative and realistic scenarios .
5. Understanding the Limitations of Due Diligence :
   • Due diligence is not a panacea. Risks related to people and culture, in particular, cannot be quantified and are difficult to detect. It is necessary to make an effort to get a sense of the company's true nature through dialogue with local management and employees , even if it is not expressed in numbers.

Summary: The keys to success are preparation, local understanding, and patience

Uzbekistan is an attractive market for entry through M&A due to its great growth potential. However, success depends on a deep understanding of the local legal system and business practices, as well as steady preparation and effort to overcome cultural differences.

The most important investment is to assemble a team of excellent local experts and build relationships of trust . Humble listening to their advice and proceeding with the process without rushing will be the quickest path to successful M&A in Uzbekistan and long-term business growth beyond.

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This article is based on information at the time of publication and is subject to change due to legal changes, etc. For actual cases, please be sure to consult with an expert.