Summary of important things to pay attention to when buying a business in Vietnam

Sometimes it's easier to buy a business than to start a new one in Vietnam. Before doing so, there are essential things to consider. In Vietnam, this article discusses significant  considerations when buying existing real estate.

Many international investors are more interested in buying an existing business than starting a new one in Vietnam. These smart entrepreneurs are looking for businesses that have hit milestones and have been profitable for years. In addition, these companies already have all the legal documents, certificates of compliance and registration that contribute to the establishment of organizations in the country. So what should investors pay attention to when buying a business in Vietnam?

Things to consider before buying a company in Vietnam

1. Financial problems

Check your company's financial statements for growth forecasts, reputation, return on investment, cash flow, profitability and deregulation in your area.

2. Tax compliance issues

Examine the internal tax process, tax compliance history, tax obligations, commercial and corporate structure, and the latest tax audits.

Issues you should to consider before deciding to buy a business in Vietnam

3. Legal issues

Make sure your business compliance is constantly changing, including laws and documents, titles, title contracts, property, leases, legal requirements, business restrictions, and warranty.

4. Employment issues

Familiar with the hiring process and corporate structure. Labor law in Vietnam is very strict and managing and dismissing employees can be cumbersome.

5. Permitted activities

Find out if your business is licensed or licensed, and if this affects your change of ownership. Make sure there are no special restrictions on foreigners.

Minimize risks before buying a company in Vietnam

It is possible and feasible to reduce the risk of buying a business in Vietnam. There are three things you can do:

1. Rating

Take your business seriously with complete facts and evidence. This is a way to determine if the purchase price matches the review results.

Evaluation can be done internally as a general assumption or externally as a formal and professional process. The formal review process is very important.

2. Appraisal process

Another Significant element in eliminating investment risk is the due diligence process. It is necessary to select and investigate the detailed background of the target company.

Comprehensive due diligence allows you to uncover potential and existing risks and get a big picture of what you're achieving. Targeted business claims incorporate all three forms of due diligence: legal, financial, and commercial.

Some risks when acquiring companies in Vietnam

3. Structure

The structure of the target business should also be reviewed to ensure that it is appropriate and legally suitable for restructuring at the time of acquisition.

4. Accountability in transactions when buying businesses in Vietnam

Due diligence assesses the acceptability of an accurate preliminary assessment of the target company and all aspects of the target company (financial, manufacturing, business risk identification and other factors), dependencies, HR, culture, technical compliance, legal, technical). The ability to expedite the buyback process and attract "qualified" shareholders depends on its underlying value.

Payments are a significant transactional function that enables investors to estimate how acquisitions will affect the performance and growth of internal business process characteristics. /new function. This is critical to achieving strategic goals and ultimately increasing shareholder value.

From a risk perspective, accountability is a cornerstone of the M&A process. This is a separate scan of existing risks, operational differences, and potential problems. It shows the dynamics and structure of the company, and the most significant aspects that need to be addressed. Make the assessment, acquisition and integration process a success.

5. Look for buyer protection mechanism

Buyer protection is important when building a deal, and discussions with existing owners can be difficult. If a risk or compliance issue is identified, it may be difficult to establish adequate protection through price reductions or deferral of payments, as suppliers may not be aware of the same level of risk or need.

Therefore, understanding the negotiation process and the expectations of both parties is important throughout the process. While it is often difficult to provide the same level of protection that may exist in other markets, careful negotiation and creative structure can often provide a similar level of protection that is acceptable to all parties.

Some typical business acquisition cases in Vietnam

Masan Group Transactions

Masan's top deals are VinCommerce, Starck, NET, 3F. The most notable case at the end of 2019 is Masan's acquisition of VinCommerce (VinMart, VinMart +) from Vingroup. This transaction is based on Vingroup's scaling strategy and Masan's environmental expansion strategy. This transaction is worth about VND5.400 billion.

After being acquired by Masan, VinCommerce has undergone a complete overhaul from branding to management systems. In the first six months, Masan closed 151 inactive VinMart supermarkets and stores and opened 45 new supermarkets and stores. Eighty percent of the closed institutions are in Ho Chi Minh City and secondary cities.

Recently, Masan claimed to rename VinMart and VinMart + to WinMart and WinMart +, respectively. However, the new logo and brand remain undisclosed.

After merging with VinMart, Masan acquired NET for VND650 billion. It is a subsidiary of a company that previously publicly purchased a 60% stake in a NETCO limited partnership for 40.000 Dong per share. NETCO is a company that owns 1.5% of the Vietnamese laundry detergent market.

Big C is a big supermarket brand sold to Central Group

Central group bought Big C Vietnam

Big C Vietnam has a network of 43 stores and 30 shopping malls, with net sales of 586 million euros ($666 million) in 2015.

According to the press release, Central Group will cooperate with Vietnam's Nguyen Kim Group to continue Big C Vietnam's strategy, especially supplying Vietnamese goods to Big C stores.

In December 2015, Casino Group announced plans to sell its Big C supermarket chain in Vietnam, Thailand and Colombia to pay off debt. The casino sold Big C Thailand to TCC Holdings for 3.1 billion euros ($3.4 billion) in February.

In Vietnam, there is competition from retail chains such as Lotte in South Korea, Berlijacker in Thailand, Central Group in Singapore and Daily Farms. Potential Vietnamese customers Co.opmart and Masan Group are also participating in the bidding.

Highlands Sold For Jollibee

Philippine company Jollibee has paid $25 million to buy 49 percent of the Vietnamese and 60 percent of the Hong Kong-based VTI Group, owned by businessman David Thai.

Not only that, but Jollibee also agreed to lend the company an additional $35 million at 5% interest. The loan will be repaid in 2016. According to a Jollibee representative, the money will be used by VTI for future investments.

In addition to continuing to grow the coffee chain in Vietnam, Jollibee said it will also bring Highlands Coffee products to other Jollibee restaurants in Asia. This will be an important added value for Jollibee as Vietnamese coffee is now world - famous for its top quality.

Some limitations of the form of buying a business in Vietnam

Acquisition requires a change of ownership. It is usually done in the form of a purchase of existing or new stock, but it also includes the acquisition of assets. For unlisted companies, the liability is mainly due to failure to comply with the terms and conditions of the contract.

For capital and shares, investors must comply with the provisions of the law on public securities and public companies. If a company is converted or converted into shares, that company is subject to all regulations applicable to the conversion and conversion. Finally, the nature of the investment must be consistent with the international treaties to which Vietnam is a party.

The Vietnamese government has made a lot of efforts to reduce restrictions from business acquisitions

In the case of an acquisition - It is still a challenge to collect information about the Vietnamese target companies, as the target companies do not need to disclose the information to the buyer. This can lead to longer wait times while the buyer is conducting legal and financial due diligence.

In addition, some regulations apply to certain industries such as banking, financial services, and insurance. If the acquiring company wishes to acquire a company in these areas, additional local laws will apply. Vietnam's parliament has passed revised company and investment laws to reduce the complexity of business in Vietnam. Both laws came into effect on January 1, 2021, and under new-generation free trade agreements such as EVFTA and CPTPP, Vietnam ranks as the second most attractive M&A market globally.              

The Investment Law revised, supplemented and updated aspects of investment, condition management, investment incentives and support mechanisms, and canceled the administrative approval of several investment projects.

The law removes the need for merger approval if the transaction does not increase the foreign affiliate's interest in the target company. M&A transactions that increase the foreign share capital or registered capital of the target company by 50% or more are subject to M&A approval.

Hopefully the above information can help readers in learning about buying a business in Vietnam, successful cases and some risks.