M&A in Indonesia: Risks, Rewards and Roadmaps

With Indonesia emerging as a prime destination for foreign investment, M&A offers a strategic gateway, although not without legal complexities

As Southeast Asia’s largest economy, with a rapidly expanding middle class, strategic geographical location, and an ambitious infrastructure and industrial development agenda, Indonesia presents an increasingly attractive environment for foreign investors. One of the most efficient ways to gain a foothold in this dynamic market is through M&A, which allows investors to access local networks, assets, customer bases and regulatory licences quickly.

However, many foreign investors encounter regulatory and operational hurdles. Bureaucratic procedures can be cumbersome, and compliance requirements vary by sector and are subject to change. This guide outlines the legal framework, key risks, opportunities and practical strategies for global investors looking to pursue M&A in Indonesia.

Legal framework

Indonesian M&A transactions are primarily governed by Law No. 40 of 2007 on Limited Liability Companies (the Company Law). This law provides the foundational structure for most corporate actions, including mergers, consolidations and acquisitions involving Indonesian limited liability companies (Perseroan Terbatas, or PT).

Complementing this is Law No. 25 of 2007 on Investment (the Investment Law), which applies to both foreign and domestic investment activities.

Another important regulation is Government Regulation No. 5 of 2021 on Risk-Based Business Licensing, introduced as part of the Omnibus Law reform. This regulation standardises licensing procedures across industries and directly affects the post-transaction compliance obligations of acquiring entities.

In addition, Indonesia’s Competition Law, governed by Law No. 5 of 1999 and its amendments, imposes post-closing notification requirements for transactions that exceed certain asset or turnover thresholds. The Business Competition Supervisory Commission (KPPU) is responsible for enforcement.

M&A transactions involving public companies are also subject to the Capital Market Law, regulated by the Financial Services Authority (Otoritas Jasa Keuangan, or OJK). These deals must comply with requirements relating to material disclosures, mandatory tender offers and transparency.

Acquisitions that result in significant ownership changes often require shareholder approval and notification to the relevant authorities. Spin-offs and divestments are also permitted and are commonly used in corporate restructuring, particularly where required by sector-specific regulations or competition rulings.

Foreign investors should also consider Presidential Regulation No. 10 of 2021, commonly referred to as the “positive investment list”, which defines foreign ownership limits across various business sectors. While many industries are fully open to foreign investment, others are restricted or closed due to cultural or strategic considerations.

In some cases, additional licences or partnerships with local entities may be necessary. Any foreign-owned entity must be registered as a PT PMA (penanaman modal asing, or foreign capital investment company) and obtain relevant business licences through Indonesia’s Online Single Submission system.

Finally, transactions that exceed specified thresholds require a post-closing notification to the KPPU. In the case of listed companies, both the OJK and Indonesia Stock Exchange require disclosures and prior approvals for material and affiliated transactions or changes in control. All amendments to the company’s articles of association or changes in corporate structure must also be submitted to the Ministry of Law and Human Rights.

Legal risks and considerations

While Indonesia’s legal structure supports M&As, several risks must be carefully managed to ensure a successful outcome.

Creditor objections and outstanding liabilities. Creditors have the legal right to object to any proposed M&A transaction. Even one unresolved objection may delay or prevent a deal from proceeding. This risk became evident during the 2024 to 2025 merger between listed companies PT XL Axiata and PT Smartfren Telecom, where an objection caused a four-month delay.

Investors should investigate whether the target company holds any loan agreements or debt instruments with change-of-control restrictions. It is also important to assess whether creditors have conversion rights, as these could dilute post-transaction ownership and control if exercised.

Employee concerns and labour law compliance. Labour considerations are also critical in Indonesian M&A transactions. Employee welfare must be taken into account, as required by the Company Law. Inadequate handling of employment issues can result in resistance from workers, or even public backlash. For example, the proposed merger of PT GoTo Gojek Tokopedia Tbk with Grab Holdings prompted protests by drivers concerned about job losses and reduced pay.

Effective employee communication is essential. Investors must ensure compliance with Indonesian labour laws, particularly regarding severance pay and termination notice. A failure to do so can lead to legal disputes and harm post-merger integration.

Foreign ownership restrictions. The positive investment list outlines sectors where foreign ownership is either capped or prohibited entirely. Industries that are culturally or strategically sensitive may be closed to foreign investment or require joint ventures with local partners. For instance, domestic air transport and hazardous material shipping are capped at 49% foreign ownership, while certain types of coffee processing are entirely closed to foreign investors.

Nonetheless, investors may maintain operational control through shareholders’ agreements, which allocate authority over decisions such as board appointments, capital raising and strategic direction.

Rewards and advantages

Despite the challenges, Indonesia presents substantial upside for M&A investors. Acquiring or merging with a local company provides immediate access to infrastructure, regulatory approvals and established customer relationships. It also connects foreign investors with local talent, sectoral knowledge and well-established supply chains.

It offers a platform to enter high-growth sectors such as fintech, digital services, renewable energy and healthcare. Indonesia’s digital economy is forecast to exceed USD100 billion by 2025, making it a strong candidate for acquisition-led expansion.

Roadmap for foreign investors

The first step is to engage local experts early. Legal, tax and business advisers with experience in Indonesia should be involved from the outset to support deal structuring, compliance assessments and negotiations. Lawyers who specialise in the relevant industry can add significant value by anticipating sector-specific risks, regulatory nuances and deal dynamics that may not be immediately apparent.

Enhancing due diligence is essential. Financial reviews should be complemented by assessments of legal compliance, employment practices, outstanding obligations, intellectual property and environmental risks. Site visits and direct discussions with key stakeholders can reveal liabilities that are not captured in financial reports.

Cultural integration must also be prioritised. Efforts to harmonise corporate values, communication styles and leadership structures can enhance employee engagement and reduce post-merger friction. Finally, investors should maintain a long-term view. Long-term success relies on building local relationships, staying flexible with changing regulations, and committing capital with patience.

Conclusion

Indonesia presents a compelling landscape for global investors looking to establish or expand their footprint in Southeast Asia.

With thorough preparation, informed legal and commercial guidance, and a strong appreciation for local business practices, foreign investors can successfully mitigate risks and unlock considerable value.

Ultimately, for investors prepared to commit to the process, M&A offers a powerful mechanism for achieving rapid market access, scalable growth, and a lasting competitive edge in one of Asia’s most promising and resilient economies. The effort required is considerable, but the rewards can be even greater.

DEHENG ARKO LAW OFFICE
12th Floor, Lippo Kuningan
Jl. HR Rasuna Said Kav. B-12,
RT.17/RW.7, Kuningan, Karet Kuningan,
Setiabudi, South Jakarta City, Jakarta 12940
Tel: +62 21 2911 0015
Email: info@armilarako.com
www.armilarako.com