Vietnam’s mergers and acquisitions market recorded steady growth since early last year, buoyed by foreign investors who desire a speedy entry into the large market of over 96 million people. Although the M&A market here has become more familiar with foreign investment, some challenges still linger. Investors often complain about the transparency of financial reports and the auction process at state-owned enterprises (SOEs), for example.
Acquiring another company is a difficult process with many laws for regulation. Here is the guide on how to navigate through those laws and avoid mistakes.
In the business world, companies merge all the time. Today startups are doing the same to expand and change the way they do business. An acquisition involves buying a company and changing it to fit the way you do business. The goal is to create a new company made of the best parts of your business and the proven parts of another.
A startup would buy another business for various reasons. These reasons include access to new technology and access to new markets. Buying a company can mean being able to make new products and having access to new resources or fresh management talent. However, if you handle an acquisition poorly, your business could take on the mistakes of a broken organization and heavy losses.
Here is a step-by-step guide of how to acquire another company in Vietnam.
1. Make a Plan
Look at the reasons to buy a company:
- Finding new markets
- Industry roll-up strategy
- Getting advanced technology
- Market window strategy
- Product supplementation strategy
- Getting new personnel
- Synergy strategy
- Geographic growth strategy
- Increasing market share
- Diversification strategy
- Vertical integration strategy
- Increase supply chain pricing power
- Adjacent industry strategy
- Eliminate competition
Consider which of these resources you need. Find out why the business is worth buying. Develop an acquisition plan that gets the most out of the enterprise while spending the least. Focus on the aspect of the company that is most valuable to you and shape your offer around that benefit.
2. Build an Acquisition Team
Build a team that fills the following roles:
- An executive manages the team to ensure the success of the acquisition. This person also reports progress to the board of directors. Your CEO is the best candidate for this position.
- An investment banker handles your finances and looks into the stability of the company you are acquiring.
- An acquisitions lawyer understands the rules of transferring ownership.
- A human resources expert organizes the staff from the new company.
- An IT specialist merges your technical infrastructure with that of the new company.
- A public relations officer promotes the merger to the public. This person informs your business partners and customers about the new merger.
These people will work to provide useful information on the company. They will determine what can become a part of your business and what should not.
3. Do Your Research & Due Diligence
Typically, mergers and acquisitions follow a similar process that includes the following general phases:
Planning: Planning includes elements ranging from strategy, initial research, and investor pitching to communication plans and timelines. Thorough planning is crucial to any successful M&A.
Valuation: This phase entails several specific and highly detailed steps, including financial valuation, culture and synergy mapping, and due diligence. Acquiring companies can use several different techniques to evaluate an organization’s profitability or holdings; many opt to hire outside counsel to perform these analyses.
Integration: Once you’ve signed the deal, it’s time to integrate the two business entities. Successful integration requires planning for organizational structure, finances, roles and responsibilities, culture, and much more. Be sure to monitor integration over time and strive to continually improve.
Common documents needed
- Summary of business owner requirements
- Three-five years of financial data (P&L and balance sheet)
- Annual review of owner’s benefits
- Summary of top customers
Non-Disclosure Agreement: This document makes sure all information considered confidential will be treated carefully and not shared. It also means the information has to be returned upon request.
Letter of Intent: This document states that you intend on buying the company after signing the NDA and after considering the business is worth.
Confidential information memorandum: This document provides the prospective buyer with information for the initial offer. It is commonly referred to as the “book” and will typically include: a summary of business operations, summary of industry and market opportuntiies, financial information, and summary of auction process.
Indication of Interest: With this you express an interest in making a deal in vague but formal written offer.
Purchase Agreement: You and the seller formalize the agreement in a binding legal contract.
4. Make Your First Offer
If you like what you have found, make an offer. Make a good first impression with clear positive negotiations by offering a fair price. Because you are attempting to buy this company, you need to make the first offer. Remember that the merger working is your responsibility. Also, keep in mind that you are buying more than a company. You are buying the brand, the company’s goodwill, and its people. Be flexible and make an offer between 75 and 90 percent of the company’s worth.
5. Negotiate the Terms
Reach an agreement that ends in the happy merger of two companies. Be firm but don’t undermine your success by being too harsh. Try not to overpay and work toward an agreement that benefits both parties.
If things go well, you will settle on a price, but this process is about more than money. This is about understanding why the owners are making their counteroffer.
Find out why the company is incentivizing the sale. See if there might be something wrong with the company. This will give you a clearer idea of what you are buying.
After you have settled on a price, work over the soft issues. Figure out who stays with the company and who you will have to let go. This part can be emotional, so be sensitive and try to keep as much of the talent in the company as possible.
6. Write Up (and Then Sign) a Contract
Contracts are not the end of a negotiation. They are where things get complicated. The deals don’t end when you go to contract. Having a lawyer recording the negotiation makes things easier. A contract lawyer will find anything you need to talk about.
If you need a lawyer to help you with an acquisition in Vietnam, contact a local business law firm, such as GBS. Let their expert business and contract lawyers make the process less complicated. Their legal experts have the skills to guide you through the process. GBS can help you avoid costly oversights in the finished contract. GBS’s lawyers have experience with mergers and acquisitions between companies both big and small and the experience to get you the most beneficial deal possible when you sign the contract.