by Apra Law

In the trend of economic globalization, the wave of mergers and acquisitions (M&A) in countries with developed economies took place strongly. In Vietnam, in the past decade alone, the number of M&A deals has increased rapidly with thousands of successful deals, reaching a total value of more than 50 billion USD, becoming a channel to mobilize capital, contributing to diversifying channels to attract capital for the economy, promoting the process of renovating the growth model and restructuring the economy. Even when the whole world is suffering the negative impact of the Covid-19 pandemic, the amount of foreign investment capital into Vietnam – including investment flows through M&A, is still growing.

According to data from KPMG Vietnam, in the 10 months of 2021, the M&A market attracted more than US$8.8 billion, an increase of 17.9% compared to 2020 and 13.7% compared to the year before the epidemic, 2019. By the end of November 2021, the total investment capital newly registered, adjusted and contributed capital, bought shares by foreign investors reached 26.46 billion USD, up 0.1% over the same period in 2020; in which, investment through capital contribution and share purchase reached nearly 4.4 billion USD. However, 90% of the total value of M&A deals in Vietnam is at 3-4 million USD. 

Although the M&A trend is gradually gaining popularity in Vietnam and achieving remarkable developments, however, there are still limiting factors. The biggest obstacle is the weakness of competitiveness on all three levels: country, enterprise and product. At the same time, Vietnamese businesses do not have much information and understanding about M&A conditions and procedures. In addition, there are other factors such as the complex legal framework; the ability to evaluate corporate assets; corporate governance ability; accounting system; the quality of the management team; corruption rate; Therefore, although it is a very potential market and M&A demand is becoming an inevitable trend, in reality, Vietnam is still a new market compared to other countries in Southeast Asia and rest of the world in the implementation of M&A transactions.

In our country today, M&A deals are only done mainly with weak state-owned enterprises, difficult to survive independently or in danger of bankruptcy, etc., so they cannot fully reflect the superiority of this activity. In general, the current situation of M&A activities in Vietnam is still small, spontaneous, small in number, with limited knowledge, little information, and there are not many reputable organizations to do it. This situation stems from the following main reasons:

Causes from investors

Firstly, the issue of business valuation is always a complicated issue for both investors and businesses when negotiating. For nascent markets like Vietnam, predicting the growth or decline of a business is very difficult. Traditional valuation methods such as the discounted cash flow method often do not provide the true accuracy of those used for predictable and steady growth businesses in advanced economies.

This method is highly dependent on assumptions about the market as well as the possibility of future growth. One of the factors limiting this is that businesses often do not do market research and determine their market share properly. On the other hand, the enterprise’s past accounting figures are not reliable and detailed enough to perform an accurate analysis. Issues that arise during the review, especially the financial performance of businesses, can also influence the assumptions used for future financial projections.

Another method often chosen by investors as an alternative to, or used in conjunction with, the discounted cash flow method is the revenue/profit multiplier method. However, this method also has certain limitations when Vietnam’s stock market is developing, this multiplier is often accepted by investors in the market at a high level. In addition, this method only uses current earnings figures for current P/E ratios, while future P/E ratios must also use financial projections such as the extraction method cash flow deduction.

Second, in the deals of investment funds, the synergistic value is almost nonexistent. Even for one enterprise to invest in other businesses but not in the same line of business, it is less likely to bring synergistic value, and even have a negative effect. For businesses that are in the process of reform, the need to spend more to improve the business situation such as perfecting the distribution system, buying insurance for employees, paying for experts, etc. are factors. increase costs for businesses. It is also difficult to increase profits due to resonance when the company’s products are only consumed in the domestic market… Therefore, the synergistic value is rarely noticed by investors when invest in Vietnamese enterprises, or it is difficult to see whether those synergistic values ​​actually exist or not. In the future, the creation of synergistic value can only be seen most clearly in the banking industry if there is a case where banks buy, sell, and merge together to create a larger economic entity to increase their strength. compete with other competitors.

Causes from Vietnamese enterprises

Firstly, Vietnamese people still have a heavy Asian mentality, consider the company as their “child”, so they rarely want to sell. Therefore, many domestic enterprises are still hesitant about M&A activities. This makes M&A deals in Vietnam still limited.

Second, Vietnam’s human resources have not yet fully met the market’s demand for M&A activities. The lack of senior managers to manage new facilities is also the reason why businesses are still hesitant in making M&A decisions. The problem is that in the coming time, it is necessary to train more methodically and in-depth for each specific personnel position.

Third, Vietnamese enterprises still have the following problems:

– Most private companies in Vietnam or in another developing country usually have two accounting systems. A book is recorded based on legal and complete invoices and documents and is the basis for preparing tax statements and year-end tax finalization. These data are also used to post as official information when disclosing information about the business to the outside. Another system of records is internally tracked, wherein there are revenues and expenses for various reasons without valid receipts. Although this practice is illegal, it is still unavoidable in practice. When using numbers for persuasion or as historical data to predict the growth of businesses that are valued to investors, businesses often use an internal bookkeeping system because these data can can increase revenue and profit for the business, although this information is never disclosed to the outside by the enterprise.

Also related to the above issue, if the revenue and profit recorded outside are included, the business results of the enterprise need to be included in the cost of value added tax on sales, income tax. Corporate income is charged to additional profits and expenses that are not tax deductible, but are eliminated by the tax authorities when they do the annual tax settlement with the business.

The fixed assets of the business often do not prove the owner’s origin. There are assets purchased before the establishment of the business, bearing the name of the individual owner of the business owner, then put into use for the business and recorded in the accounting books as the business’s assets. These assets, legally, will not be owned by the business and are more valuable if the assets are land, buildings or land use rights.

The revaluation of fixed assets is also done informally, the revaluation basis is not reliable and is not recognized by Vietnamese accounting standards. In addition, there are cases where fixed assets are used as bank collateral without being declared to investors.


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