Risk Prevention Mesures During the M&A Process

During the M&A process, risk prevention and management is an important part of ensuring the success of the transaction. The article Risk Prevention Mesures During the M&A Process below will help readers better understand some common measures to prevent and minimise risks in the process of buying and selling companies.

1. Thorough evaluation

A thorough evaluation is the most important step before proceeding with the M&A process in an M&A transaction. This helps ensure that both parties have a clear understanding of the transaction partner, from the financial background to the organisational culture. The objective of this assessment is to clearly identify the weaknesses and strengths of the partner business in order to make a decision on whether to proceed with the purchase and sale transaction, shape the commercial strategy and post-transaction integration based on the information gathered from the thorough assessment.

The assessment involves the collection and analysis of information related to the financial position of the partner business, including financial statements and business indicators. In addition, capture your current business activities, including your business model, products/services, and growth opportunities/potential. In addition, evaluate the management style and organisational culture of the business, including the organisational structure, management processes, and values/culture of the business. In Vietnam, conducting a thorough review often requires assistance from local experts with a deep understanding of the market and business regulations. These experts not only help gather information but also help explain and provide insightful analysis of the business situation and organisational culture in Vietnam.

2. Financial analysis

Financial analysis plays an important role in the process of buying and selling companies in Vietnam to assess the financial position of partner enterprises. This helps to clearly define financial indicators and assess the financial risks associated with trading. Financial indicators should be carefully evaluated, including:

• Revenue: Assesses the growth and stability of revenue across business cycles to forecast future growth potential.
• Profitability: Determine the profitability of the business and the stability of the profit margin to assess future profitability.
• Debt situation: Assess the current debt situation and solvency of the business to ensure financial stability after the transaction.

3. Legal evaluation

The constant change and adjustment of laws in Vietnam may affect the way legal issues are identified and assessed during the company acquisition process. Besides, the complexity of legal regulations and the heterogeneous interpretation of the authorities can create uncertainty and legal risks for the parties to the transaction. Therefore, legal evaluation is an important and indispensable part of the company purchase and sale process in Vietnam to ensure the validity and suitability of the transaction, while minimising legal risks for the parties involved.

In particular, the participating parties need to verify carefully to avoid any legal risk issues such as ownership rights – identification and inspection of ownership of the enterprise, including intellectual property rights and property, contracts – inspection of important contracts of the enterprise, including employment contracts, sales and lease agreements and tax regulations – assessing the tax provisions related to the business and the legal risks that may arise from them.

4. HR risk management

Human resources play an important role in the success of M&A. In the context of Vietnam’s labor market becoming more competitive, HR risk assessment and management is essential. This includes ensuring team integrity, and managing organisational culture conflicts after making deals.

Human resources play an important role in the success of the company acquisition process in Vietnam, especially in ensuring the consolidation and efficiency of the post-transaction consolidation process. HR risk management helps ensure that your business is not affected by HR-related issues after a transaction is executed. Not only that, by managing HR risk professionally, businesses can optimise the value of the acquisition transaction and achieve the initial strategic objectives.

HR risk management during the company acquisition process includes:

• Ensuring the harmonisation: HR risk management entails ensuring the harmonisation of the staff after making a transaction.
• Talent assessment and development: There should be measures to assess and develop talent during the M&A process to ensure that they are able to adapt and contribute to the new environment.
• Culture conflict management: An important element in HR risk management is to resolve and manage organisational culture conflicts after a transaction is executed. This ensures that cultural fusion is a flexible and efficient process.

5. Market and industry analysis

The market and industry play an important role in assessing the risks and potential of the company acquisition process in a company purchase and sale transaction in Vietnam. Understanding the industry’s competition and growth potential will help forecast potential risks and make smart decisions.

Evaluating competitors in the industry not only helps determine the number and strength of these competitors but also helps parties understand competition to help forecast competitive pressures that may affect business performance and profitability of businesses after making transactions. Besides, the analysis of the growth potential of the industry is equally important. Assessing the growth potential of the industry helps identify opportunities and challenges for businesses after consolidation. In addition, understanding the growth potential will help make effective development and investment strategies in the future.

6. Ensuring legal compliance

Legal compliance is a key factor in minimising legal risks in the process of buying and selling companies in Vietnam. Support from local legal professionals is important to ensure that all legal procedures are carried out properly.

Compliance with legal regulations is a key factor to help minimise legal risks in the process of buying and selling companies in Vietnam. Compliance with legal regulations helps protect the parties to the transaction and ensure the validity of the transaction. Support from local legal professionals is important to ensure that all legal procedures are carried out properly. Not only that, these experts have a deep understanding of legal regulations and practices in Vietnam, helping to ensure that all legal processes are fully and accurately followed.

The measures to ensure compliance with legal regulations:

• Inspection and verification: The parties to the transaction need to check and verify the information related to compliance with legal regulations of the partner enterprise.
• Contract drafting: The support from legal experts helps to draft contracts per the legal provisions and protect the interests of the parties.
• Implementation of legal procedures: Ensure that all legal procedures are carried out in accordance with the regulations following the process.

7. Develop an integration plan

The integration plan is an important step to ensure the success of the M&A transaction by shaping and executing the consolidation process after the transaction is completed. In Vietnam, where there are differences in organisational culture and business processes, developing an integrated plan becomes especially important to ensure the smoothness of this process and optimise business efficiency.

The factors to consider in an integration plan:

• Organisational cultural differences: understanding and managing organisational cultural differences between two businesses to facilitate the merging process.
• Business processes: reconciling and improve business processes to optimise performance and efficiency after consolidation.
• HR integration: determining how to integrate the HR team to ensure smooth harmony and business continuity.

8. Define conditions and commitments

Defining the terms and commitments in the company purchase contract is an important step to ensure transparency and clarity of the terms. The conditions and commitments in the contract need to be arranged in a transparent and clear manner to avoid misunderstandings and disputes in the future. In addition, transparency and clarity help the parties to the transaction understand their responsibilities and obligations. Besides, support from experienced legal professionals in drafting contracts is very important. These professionals help ensure that all conditions and commitments are properly reflected in the contract and comply with the law.

The scopes of conditions and commitments that parties should note are:

• Transaction value: clearly define the transaction value and conditions related to payment.
• Post-transaction commitments: define post-transaction commitments including guarantees, technical support, and post-merger organisational structure commitments.

In the context of the rapidly growing economy in Vietnam, the implementation of the M&A is not only an opportunity but also a challenge for businesses. However, by applying the risk prevention measures mentioned above, the parties can minimise risks and increase the chances of success for the M&A transaction in Vietnam.

Above is the general content related to the Risk Prevention Mesures During the M&A Process that Phuoc and Partners share with readers. If you have any difficulties related to the legal field, please contact us. Phuoc & Partners is a law professional consulting firm established in Vietnam and which currently has many nearly 100 members working in offices in Ho Chi Minh City, Hanoi and Danang. Phuoc & Partners is also considered as one of the leading law firms with specialised staff in the legal field in Vietnam, whose practice areas are ranked first in the legal market such as Labour and Employment, Taxes, Mergers and Acquisitions as well as Litigation. We are confident to be one of the Law Firms providing the best legal services to clients.