M&A Due Diligence and Execution in Vietnam

Merger and Acquisition (M&A) activities in Vietnam have been rapidly increasing over the the years in value and number of transactions when Vietnam’s opening policies to attract foreign investments loosen up. The M&A due diligence and execution are therefore important steps to ensure a successful transaction.

For foreign investors wishing to take advantage with a certain level of risks in Vietnam where the cost of labour are cheap, mid-income populations are growing, and the need of capital are high, it is imporatant to find the right target companies to invest. Challenges might arise when approaching the right local companies, locating the right decision makers within the local companies, encountering differences in languages and cultures.

It is imporant that the local consultants with the understanding of the business and legal environment in Vietnam where the local companies are incorporated could be involved at an initial stage to monitor and minimize the risks, improve the effectiveness of the M&A process in Vietnam.

The Vietnam consulting company could also provide corporate intelligence and insights of the Vietnam targeted companies to have an overall evaluation of the compliance of the Vietnam companies, possible risks involved and growth potential. Financial forensic services might also be needed before other further steps. Then, the following will need to be considered when undertaking the M&A in Vietnam.

+Due diligence

M&A due diligence in Vietnam is a vital step because it determines whether the M&A will succeed or not. There are some aspects that must be carefully considered:

-Financial reports

Review all the financial reports of the Vietnam targeted companies within 3 to 5 years to assess the current and future financial situation. These data needs to be audited by a reputable independent auditing company. Evaluating financial situation targets on many aspects such as the reasonable connection between the financial statements, operating and sales margin of the business in relation to the average in that industry. These data allow valuation real value of the target business.

-The cash flow

Checking the dates on invoices showing that whether targeted businesses have paid promptly or not. Term of payment may vary from industry to industry, but generally 30 to 60 days. If the money order is paid after the billing date period of 90 days or more, it means that the business owner may be struggling with cash flow. Finding out that if the clients’ inability to pay bills or not is very important.

-The staff

Determining the importance of staff for the success of the business considering work habits of employees, working time of key employees; ability to remain working after a change of the owner occurs; the incentives necessary to keep key employees; ability to easily replace key employees; the relationship of key employees with the company’s customers.

-The customers

This is the most important assets of the Vietnam targeted company. Make sure that clients are as the other tangible assets of the business. Evaluating customers on some primary aspects: the relationship with the current owner of the business, customer history with business relations and the contribution of each customer to the profits of the company; assessing that customer will leave or stay when the business having new owners; customer services and dispute of the company, the relationship of the former owner of the business with the community or the industry.

-Business location

This is especially important if the targeted company is a retail company. Does the importance of business location play a crucial role for the success of the company? How is the location of the company you plan to acquire? Is there sufficient parking lot for customers? How does the company depend on sales in the region? How is the prospects of the business in this area? Does this place have been in the process of rapid change from new residential district office building or not? Has business location become more or less desirable because of contemplated changes in surrounding area or not?

-Competitors

Considering this aspect in order to define the capacity of the targeted business in the industry, the following questions would help: who are its competitor and what are their strategies? Does the price war happen frequently? How has the competitive environment changed?

-Business registration, permits and zoning

It’s necessary to make sure that business registration certificate and other legal documents can be easily given to the buyer. It would be better to acknowledge the procedures to transfer these documents and its fee with the help of local management set up company in Vietnam. If the targeted company is a joint-stocks company, what is the procedure for the business registration? Can foreigners own the company 100% according to Vietnam laws? Conditional investments in Vietnam need to be considered carefully by lawyers in Vietnam to avoid mishaps.

-The company image

Company image can be a significant asset and that cannot be assessed in the financial report. There are many intangible factors to consider when evaluating a company: how to serve customers, how employees answer the phone and the level of support the community or the industry.

+Negotiate the price

It is important to understand the purpose and motivation of both parties. The sellers’ motivation are formed and affected by value drivers. There are two main value drivers which are approach value and avoidance value. Approach value is our purpose such as prosperity and avoidance value is the negative effect that we need to eliminate. Normally, the buyers try to find out what are the reasons why the owner wish to sell the companies. This will help the buyers plan a reasonable strategy beforehand.

A research analyzes the general aspects that the buyers seeking for via conducting surveys companies’ owner who have sold or transformed their enterprises. The research results are focus on profit maximization (79%), minimization of tax payable (73%), protection of viability of the company (71%)…(Source: Acquisition Marketplace Review, 2007).

The motivation of the buyer in most cases is similar to the motivation of the seller, which is to maximize profits, expand markets, increase revenue, operating areas, areas of activity, minimize taxes…

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Benefits of Setting Up Company in Hanoi

Along with the trend of integration in the world, Vietnam is considered a country with rapid and strong growth, in which, industrialization and modernization are focused on developing a uniform set and achieve high performance. Hanoi and Ho Chi Minh City are considered the two cities and dynamic development in Vietnam.

In particular, Hanoi, the potential capital for developing and attracting foreign and domestic investment. Therefore, the investment from businesses to the city is seen as an advantage and the best. To evaluate how such advantages are, the following article will analyze in detail as follows:

First, the labor force

Hanoi is considered a capital with a longstanding historical developed tradition. The population is heavily crowded, reaching about 7 million after 4 times of adjusting the administrative boundaries in 2014. Ha Noi has become one of the 17 largest cities in the world. In addition, with favorable conditions, Hanoi is considered an attractive city for labor, especially qualified and highly skilled workforce. This is a particular advantage for businesses to invest in Hanoi, because the amount of labor leads to a consequence that cost for labor is cheap and a large workforce will provide for industries requiring a large amount of labor force.

Second, the pace of economic development

In 2014, the economy of Hanoi has continued to grow and controlled inflation. In addtion, GDP in the province is estimated at 8.8% and revenue is estimated at 130.000 billion, with 103% of the mathematics. Besides, administrative reform, improvement on the investment environment, business environment, policies to remove difficulties for enterprises often deploy, which made PAR index of cities rise 2 levels compared with 2012 and No. 5 of the 63 provinces and cities nationwide. Thus, with the stable and strong economic development, Hanoi is a city that brings stability for businesses to invest and develop business in this city.

Thirdly, facility

With the aim of developing Hanoi based on critirea of synchronous and modern infrastructure, leadership of Hanoi has attempted to offer policies to promote infrastructure construction of the city in order that Hanoi will become more modern, in which, the traffic system in Hanoi must be built and upgrades more modern. This is considered particularly advantage, because the synchronous development of infrastructure will bring to the development of economy of the city.

Fourthly, administrative and tax policies

With attractive policies for investment, Hanoi has implemented policies solving administrative procedures with only a door. This policy is seen as a new step forward the people of Hanoi in general and businesses having demand to invest in Hanoi in particular. With this open policy, the procedures for establishing businesses, dissolution, business transformation become quickly and easily than ever before, creat favorable conditions for the development of business and resolve administrative procedures. In addition, in order to facilitate business development for businesses, Hanoi has many policies to reduce taxes in order to create favorable conditions for development of new business with low capital.

Fifthly, geographic location

Judged to be a convenient location, with synchronous traffic system, a northern – southern railway, highway 1A, along with the expanded domestic and international routes, Hanoi is considered a city with the most convenient trade location in Southeast Asia and the gateway to the East Sea of Laos and other countries. Thus, Hanoi is the right choice of businesses that need an exchange between domestic and international provinces.

Sixthly, broad market

With the population of 7 million, belonging to one of the 17 cities with the largest population in the world, Hanoi is considered a city which has the largest consumer goods market in the country. Abundant work force, along with the large number of people from suburbs, strong demand for consumer products, services lead to favorable conditions for businesses in production and consumption of consumer products and services. These come from a reason that if the demand rises, the number of products will also lead to increase and as a consequence, economic growth of enterprises will also increase. It can be said that this is a particular strength of the city that businesses investing here are looking forward. From the analysis given above, it can be said that Hanoi is considered to be an attractive destination for small and medium enterprises, especially for enterprises with foreign investment into the Vietnam market. To better understand how to establish enterprises and choose the best type of enterprise,

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Billion USD Projects Are Coming to Vietnam

After setting a record of 14.59 billion USD in the first 4 months, foreign investment in Vietnam is forecasted to continue to accelerate in the coming time. Most likely, the first billion-dollar project will land in Vietnam this year.

Although mentioned a lot, but the 4.6 billion USD project of Exxon Mobil Corporation (USA) probably will not be the first billion-dollar project granted investment certificate in Vietnam this year. Instead, it will be the Weijia Textiles Vina Project of Wai Chi Kai investor (Hong Kong). Under the plan, Wai Chi Kai will invest 1 billion USD to build a factory specializing in the production of knitted collar products, wrist bands, ribbed fabric, textile fabrics, textile accessories, fashion accessories… The project was implemented in Dong An 2 Industrial Zone (Hoa Phu Ward, Thu Dau Mot City, Binh Duong Province).

Meanwhile, Bac Lieu Provincial People’s Committee is also urging the Ministry of Industry and Trade to speed up the appraisal process and supplement the project LNG Bac Lieu Gas Thermal Power Plant of investor Energy Capital (USA), investment capital 4.3 billion USD in Electricity Planning VII. Although the investment procedure for a power project is not simple, Bac Lieu hopes that the Project will soon be granted an investment certificate, with a scale of 3,200 MW. The reason is quite understandable, this project will add 3,000 billion VND/year to the local budget.

Besides the above billion USD projects, a series of other large-scale projects may soon be granted investment certificates this year. In which, there is a 500 million USD project of Hana Micron investor (Korea).

Information revealed that, in the middle of April 2019, Hana Micron has officially signed an investment cooperation agreement with Bac Giang Industrial Zone Management Board to implement a project specialized in manufacturing high-tech products and semiconductor equipment in this province.

Meanwhile, Apparel Far Eastern is looking to increase 610 million USD, while Meiko Electronics is about to increase an additional capital of 200 million USD in Vietnam. Once the procedure is completed, the list of large-scale FDI projects registered to invest in Vietnam this year will be extended.

The trend of shifting investment into Vietnam in anticipation of the opportunity by the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), as well as to avoid the effects of US – China trade tension, which is becoming clearer.

After Compal, LG Group recently announced that it will stop producing smartphones in Korea to move to Vietnam, in order to cut costs, improve investment and business efficiency. LG’s factory in Pyeongtaek, south of Seoul, will officially stop operating later this year, to switch production to LG’s factories in Hai Phong.

In addition to LG, CP Foods – belonging to Charoen Pokphand Foods, Thailand’s leading group of billionaire Dhanin Chearavanont, will invest more than 200 million USD to build a pork and poultry export center in Vietnam to take advantage of free trade agreements that Vietnam has signed.

CP has invested in Vietnam about 1 billion USD since 1993 and is constantly expanding investment and business to dominate market share. According to CEO of CP Vietnam, Vietnam has an advantage over Thailand in export and labor costs.

That is also the reason why more and more foreign investors shift investment plans to Vietnam. After the US – China trade tension escalated and after the CPTPP took effect, this trend became stronger.

Even, not only secondary investment projects, but according to a recent study published by CBRE, the trend of companies shifting production from China to Southeast Asia, including Vietnam, will also positively impact Vietnam’s industrial real estate sector.

According to CBRE, this trend has been going on since 2018 and will continue to increase until 2020. Thus, at least within the next 2 years, foreign investment in Vietnam will continue to accelerate.

It is important to continue to improve the investment and business environment, create favorable conditions for foreign investors to be able to welcome opportunities and speed up attracting foreign investment, especially in the areas of production of Chinese goods subject to US sanctions.

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Ha Nam: Granting Investment Registration Certificate to Capella Real Estate JSC and Tejin Group (Japan)

On May 15th 2019, Ha Nam Provincial People’s Committee held a ceremony to grant Investment Registration Certificate for the Project of construction investment and infrastructure business of Thanh Liem industrial zone, phase II for Capella Real Estate Joint Stock Company, which has a total investment of nearly 950 billion VND and Tejin Carbon Vietnam Factory Project for Teijin Group with a total investment of 12 million USD.

Over the past years, with the viewpoint of always trying to improve the investment environment, Ha Nam’s leaders always support and create the most favorable conditions for investors, focusing on strong resources to build infrastructure, especially transport infrastructure, industrial zones and clusters. Drastically direct the implementation of solutions to improve the business investment environment, administrative reform…

Up to now, Ha Nam province has 8 industrial parks approved by the Prime Minister, of which 7 industrial parks have been put into operation, 1 Thai Ha Industrial Zone has completed the documents and procedures. 887 projects have been attracted, including 260 FDI projects and 627 domestic projects with registered capital of nearly 3,000 million USD and nearly 110,000 billion VND. In the first 4 months of 2019, the province granted 40 investment projects, including 16 FDI projects and 24 domestic projects with total registered and adjusted investment capital of 200 million USD and nearly 3,500 billion VND.

In the ceremony, Ha Nam province granted the Investment Certificate to the investment project of construction and business of Thanh Liem Industrial Park Phase II invested by Capella Real Estate Joint Stock Company. With a scale of 143 ha and total investment of nearly 950 billion VND. This is one of the most capable, reputable and experienced investors, has been very successful in the field of infrastructure development and attracting investment in industrial parks and industrial clusters in some localities all over the country.

Also at the conference, leaders of Ha Nam province granted the Investment Registration Certificate of Tejin Carbon Vietnam Factory Project to Teijin Group (Japan). This is an enterprise with more than 100 years of experience in the field of materials, health care and information technology. One of the leading enterprises developing core technologies including polymer chemistry, nanotechnology, biotechnology and synthetic technology.

Teijin Group (Japan) built Tejin Carbon Vietnam Factory with a total investment of 12 million USD, on an area of 15,300 m2, producing carbon fiber products used for the aerospace industry, automotive industry, plastic engineering, health, sports… to meet the demand of domestic and foreign markets.

At the conference, Chairman of Ha Nam Provincial People’s Committee welcomed the leaders of Teijin Group and Capella Company to trust and choose Ha Nam as the project investment location. At the same time, he also believed in the construction process, production and business activities, businesses will achieve high revenue and efficiency.

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