Vietnam has become a compelling destination for business, standing out as a promising market despite global economic challenges. With a vibrant economy and growing opportunities, foreign companies have flourished and expanded, driving significant growth in the mergers and acquisitions (M&A) market.

This presents attractive exit options for business owners and investors. Strategic planning is essential, and companies should consider investment, ownership, and potential exit strategies from the outset, even if divestment isn’t an immediate goal.

This insight provides potential sellers with valuable insights and practical guidance to help them understand the nuances of selling a business in Vietnam.

1. Key valuation methods for mergers and acquisitions (M&A)

When selling all or part of an investment in Vietnam, the primary goal is to secure the highest possible sale price. The sale price represents more than just the seller’s expectation; it must also be determined by the fair market value, which depends on how attractive the business is and how well it meets the expectations of potential investors.

Although several practical methods are available to determine a company’s value, some of the most common components include:

Earnings multiples

Earnings multiples, commonly expressed as EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortisation), are a popular method for initial business valuation. This approach involves multiplying a company’s EBITDA by an appropriate industry multiple.

For example, a business generating USD 1 million in EBITDA in a sector with an average multiple of 8x would have an implied value of USD 8 million.

Valuations typically rely on the most recent or average historical EBITDA, often over a three-year period. However, this may be less reliable when earnings fluctuate significantly year-over-year. Industry and company-specific factors can cause multiples to vary, often requiring negotiations.

Earnings multiples are often used for initial estimates, however, may not capture all factors influencing a company’s long-term value. As a result, businesses use earnings multiples to get a preliminary valuation, and then employ a more detailed DCF analysis to validate these estimates.

Discounted cash flow (DCF)

This is often regarded as a reliable and straightforward method to value a business. The discounted cash flow (DCF) model discounts forecasted earnings (cash generation) to determine present value using a discount rate.

The present value reflects the company’s fair market value today, which considers expected outcomes. The discount rate reflects the investor’s required return, converting expected future earnings into present terms and accounting for expected returns and risks. Several factors influence the discount rate, including:

  • Company size
  • Risk profile
  • Asset quality
  • Debt
  • Liquidity

However, determining future earnings and an appropriate discount rate is often challenging in DCF valuation.

DCF is particularly suitable for companies with uneven historical earnings or those on a strong growth trajectory with foreseeable positive cash flows. A key aspect of DCF valuation is the rigorous validation of estimates, often based on assumptions and historical data. Growth rates and discount rates may face scrutiny from investors to ensure they are reasonable, sometimes leading investors to impose additional conditions on the seller during the forecast period.

Debt and asset components

Beyond financial performance, factors such as debt levels, property ownership, land use rights, and other non-operating assets can significantly affect indicative valuations and price negotiations. To maximise returns, companies might dispose of non-core assets and settle non-commercial debts before starting the sale process.

The fair value method offers a comprehensive approach by adjusting the values of assets and liabilities, including off-balance sheet items and unrecorded liabilities. Engaging independent appraisers ensures accurate and reliable valuations for these components.

2. Corporate structures to optimise for M&A deals in Vietnam

For foreign investors operating businesses or holding investments in Vietnam, the investment structure should enable the repatriation of profits, invested funds, and capital gains upon exit. Restructuring can be complex, costly, and time-consuming, potentially delaying or complicating a sale. A well-planned corporate structure from the outset can provide substantial value for investments in Vietnam.

Optimal corporate structures may include offshore holding vehicles, onshore special purpose vehicle (SPV) structures, or creative combinations that balance regulatory compliance, operational efficiency, tax optimisation, and ease of sale.

Receiving sales proceeds at the offshore level is often preferred. A ‘clean’ structure offers maximum flexibility for ongoing operations, reduces regulatory risks, supports proactive compliance management, and minimises trapped capital or restricted funds.

3. Presenting business value with Investment Teasers & Information Memoranda

One of the initial steps in an M&A transaction is preparing and packaging the deal. Two critical components of the sale package are the Investment Teaser (Teaser) and Information Memorandum (IM), which highlight relevant information and unique selling points to attract potential buyers.

Investment teaser

A Teaser is typically a 2–5-page summary highlighting the target company’s (often anonymous) business operations, high-level financials, projected growth, and key acquisition considerations. If a buyer expresses interest, both parties may sign a Non-Disclosure Agreement (NDA), granting the buyer access to the IM with detailed information about the target’s operations and financials.

Information memorandum (IM)

An IM is a marketing document for sellers to pitch to professional investors. It contains more detailed technical information than the Teaser, typically 50–80 pages or more in length. The IM provides in-depth and accurate information about the business from their past performances, present position, and future projections, covering key aspects investors evaluate, including:

  • Management
  • Vision
  • Core values
  • Company structure
  • Business and marketing strategies
  • Competition
  • Human resources
  • Operations
  • Financials
  • External or macroeconomic factors

Depending on the business’s industry, key metrics, and the targeted buyer type, an IM can be text-heavy or feature charts, graphs, and photos. Preparing an IM requires significant time to compile and verify the accuracy of the information.

However, it is a valuable tool, especially when sellers work with investment advisors to attract sophisticated investors. A well-crafted IM is essential to building a strong foundation for the company’s valuation and maximising transaction value during negotiations.

Choosing between a Teaser or an IM

Depending on the seller’s approach to fundraising or business disposal, deal value, investment stage, and type of investor, a Teaser, an IM, or both may be required. In practice, many sellers in Vietnam have completed business sales without an IM. This suggests that, in some cases, a practical approach using only a Teaser or transaction pack may be sufficient to advance both parties to the following stages of due diligence and negotiations, depending on the nature of the business and the investor.

4. Creating organised data rooms for business exits

During the deal process, a well-prepared data room forms the foundation of a successful transaction. To proactively manage the buyer’s information requests and facilitate the deal process, the data room should be set up before the buyer’s due diligence review begins. Potential buyers, investor analysts, or investors themselves will request substantial information to conduct financial, tax, legal, and commercial due diligences, all essential for evaluating the potential value and advancing the transaction.

The data room must be organised, properly categorised, and accessible only to authorised individuals. An efficient data room helps facilitate a smooth transaction process. Additionally, a well-maintained data room—ideally managed by an independent professional—may help the seller:

  • Reduce the risk of sharing irrelevant information that could negatively impact the deal.
  • Minimise or mitigate conditions in the Sale and Purchase Agreement (SPA).

Creating a strong first impression regarding the sufficiency and management of data helps avoid preliminary biases about the company’s data management practices.

An example of a well-structured data room may include:

  • Corporate information and overview: Ownership details and corporate structure
  • Legal documents: Establishment documents, registrations, certificates
  • Governance: Organisational Structure, Processes, and Procedures
  • Financial and accounting data: Audited/unaudited reports, management reports, accounting records
  • Tax reports and information: VAT, PIT, CIT, FCWT, and other relevant filings
  • Employment records: Payrolls, labour contracts, compulsory insurance documentation
  • Contracts: Commercial contracts, lease agreements, loan agreements, insurance policies
  • Other documents: Business plans, forecasts, intellectual property (IP)

5. Strengthening M&A deals with vendor due diligence

At an appropriate transaction stage, potential buyers conduct their own due diligence (Buyer Due Diligence) to thoroughly assess the target company and identify potential risks. Based on their findings, negotiations may arise as they determine whether to proceed with the investment.

Sellers are advised to conduct Vendor Due Diligence to proactively identify and assess business limitations and risks from the investor’s perspective. This allows for early corrective action, preventing issues from being uncovered by buyers, and helps develop frameworks or commercial strategies to mitigate identified risks. Vendor Due Diligence also supports the seller during Buyer Due Diligence, helping avoid value erosion from correctable issues and providing buyers with a road map for addressing complex matters through long-term structural solutions.

Below is a diagram identifying the key areas that a Due Diligence may approach when reviewing a target company, and the findings.