Investing in Vietnam: Overcoming M&A challenges and navigating successful integration

What is your assessment of the M&A market in Vietnam over the past year?

The M&A market in Vietnam has seen robust growth as the country continues to attract foreign investment to drive economic development. Of the 100 Japanese companies investing in Vietnam, 60% prefer direct foreign investment (FDI), while 40% lean towards M&A. However, most activity focuses on large enterprises, leaving small- and medium-sized enterprises (SMEs) underserved.

At Inmergers, we've observed a growing preference for corporate M&A over real estate, with 83% of investors interested in acquiring businesses in manufacturing and services. However, only 39% of sellers in Vietnam are engaged in corporate M&A, while 61% are focused on real estate. This mismatch highlights untapped potential in the market.

To bridge this gap, Vietnamese enterprises must strategically recognize and leverage the advantages of partnering with foreign investors. Shifting market dynamics offer valuable opportunities for businesses to scale, innovate, and enhance global competitiveness.

Thao Nguyen, a lawyer and renowned M&A expert. Photo courtesy of Thao

Which foreign investors have shown the most interest in Vietnam's M&A market recently?

Singapore, China, Korea, Japan, and Hong Kong have been the top investors in Vietnam's M&A market in 2024. These investors, particularly those from Japan, are drawn to companies capable of producing high-quality goods with strong export potential. They also prioritize businesses with established distribution systems and stable domestic market shares.

Investors typically seek companies with annual revenues of at least VND50 billion (US$2 million), low debt levels, and sustainable growth potential. Human factors are equally critical—business owners with open mindsets and collaborative attitudes attract more interest.

When is the most appropriate time for a company to consider implementing an M&A strategy?

The best time to pursue an M&A strategy is when a company is experiencing stable growth and generating strong profits. At this stage, businesses are better positioned to attract suitable partners and secure favorable deals.

Delaying M&A until financial difficulties arise often forces businesses into less advantageous agreements, diminishing their negotiating power and potentially undervaluing their assets.

Preparation is critical. Companies must refine financial and legal systems, conduct accurate valuations, and seek advisory support to enhance their appeal to investors.

Thao Nguyen sharing at talkshow "What is the destination for businesses in a VUCA world?", organized by CEO 1983. Photo courtesy of Thao

How should businesses optimize their value and attract foreign investors before M&A?

To optimize enterprise value and attract foreign investors, businesses should focus on several critical areas.

Strengthening financial health is key. Businesses should eliminate hidden or unnecessary costs and improve metrics such as liquidity, operational efficiency, risk management, and growth potential. A clear distinction between personal and business finances is essential to avoid imbalances that could raise concerns during due diligence. Building a sound financial structure, including a transparent single-ledger accounting system, helps prevent inconsistencies like the "two-ledger" issue, which can undermine investor trust.

A robust legal foundation is equally important. Addressing legal gaps and ensuring compliance with regulations builds investor confidence and reduces risks. Collaborating with legal advisory firms can uncover and resolve vulnerabilities, creating a solid and reliable base for M&A activities.

Streamlining operations is another critical step. By implementing management approaches like the Management by Objectives (MBO) model, businesses can empower employees, align departmental goals, and eliminate inefficiencies. This enhances productivity and fosters a culture of accountability and proactivity. When operations run smoothly, businesses demonstrate sustainable growth potential, making them more appealing to foreign investors.

Conducting an accurate valuation is indispensable. Beyond understanding current value, businesses should emphasize their strengths and future potential. Effectively presenting these aspects in an Information Memorandum (IM) creates a compelling narrative for international investors.

Combining solid financial data with a clear story about growth opportunities lays a strong foundation for negotiations and simplifies the due diligence process. By addressing these areas, businesses can enhance their value, mitigate risks, and position themselves for successful M&A outcomes.

M&A Vietnam's Event Welcoming Spring 2024 in Hanoi. Photo courtesy of Inmergers

What challenges do you typically face when consulting on M&A for businesses?

A common misconception among business owners is that M&A is only for struggling companies. In reality, businesses are most valuable when evaluated during periods of growth. Many owners fail to realize that timing is critical in maximizing their enterprise's worth.

A significant challenge is the lack of transparency. Incomplete or inaccurate legal, financial, and operational data during due diligence can hinder negotiations or even cause deals to collapse. Transparency is fundamental to building investor confidence and ensuring smooth valuation processes.

Unrealistic valuations often create obstacles in M&A deals. Business owners frequently have inflated expectations of their company's worth, overlooking issues such as declining revenues, rising debts, or reduced profitability. Accurate valuations, based on tangible metrics like cash flow and revenue, are essential to reflect the true value of a business. Unrealistic expectations can lead to an impasse between business owners and investors.

A mindset shift is also critical for many business owners. M&A should not be seen as a last resort but as a strategic tool for growth. It provides opportunities for market expansion, enhanced operational efficiency, and brand elevation. Recognizing this potential helps businesses align M&A activities with long-term growth goals, ultimately paving the way for more successful outcomes.

What advice would you offer businesses considering M&A?

Be patient, plan strategically, and seek guidance from reputable M&A advisory firms if needed. Early preparation, realistic valuations, and transparency are essential to attracting investors and securing successful partnerships.

Recognize M&A as a long-term growth strategy, not just a financial solution. Approach it with an open mind to unlock sustainable opportunities for your business.

Inmergers offers two core services to support domestic businesses. The first is M&A Advisory, which provides comprehensive business valuation and full M&A consulting, leveraging expertise in the Vietnamese market to guide businesses through every step of the process. The second is TopValue, a one-on-one coaching program tailored to maximize business value. This program focuses on optimizing financial and legal systems as well as improving operations management in preparation for M&A, ensuring businesses are well-positioned to attract investment effectively.