Completing an M&A transaction in Vietnam is only the beginning. Once integration begins, unanticipated obstacles frequently arise, and many are difficult to predict during talks.
While cultural differences between merging organizations could prevent collaboration and decrease productivity, overlapping positions cause internal conflict or talent loss when important personnel depart due to uncertainty about their future. These challenges are not unusual and should be discussed during the integration process. Being ready is the key, but to succeed, you need to understand the core as well. This article will delve into some of the most common obstacles that businesses experience while merging in Vietnam, assisting investors in detecting possible signs early and taking proactive efforts to ensure success from the early stages.
1. The variations between domestic and foreign M&A rules when combining businesses.
One of the most significant risks associated with M&A failures is the legal risk of disputes and litigation, which drain a company’s resources and (potentially) reputation. Most of the confrontations occurred because Vietnamese laws (despite their impact) varied from international rules. For example, when foreign investors invest in advertising in Vietnam, they will be governed by Vietnamese law and WTO agreements or other international treaties to which Vietnam is a party.
In this case, foreign investors can run advertising firms if they form joint ventures with Vietnamese partners (there is no limit on the foreign side), which means they cannot form a 100% foreign-invested entity. This will question the foreign investors and the target firm to find a harmonious way to integrate their activities once the Q&A transaction is completed. The greatest challenge comes when the foreign investor strictly adheres to and controls the target company’s organizational and operational structures.
One of the safest ways to prevent such conflict is to establish a precise agreement from the beginning, clearly identifying legal risks and avoiding mistakes made by either party. Investors may need in-house legal teams or outsourced legal experts to join if they feel an urge to review important terms or predict possible trade disagreements, especially if it is a large-scale merger. One of which is finance, one that must not be underestimated.
2. Transparency of financial reporting during a corporate merger
Many investors do worry about the openness of financial disclosures while evaluating acquisitions in Vietnam. They are mostly concerned about the under-the-table transactions at State-owned businesses (SOEs), according to Kevin Snowball, Chief Investment Officer at PXP Asset Management, are “where people might just sell the shares to their friends”. Being able to schedule a meeting with the group leaders, normally for information clarification, is also a challenge. Most of them could be reticent to meet face-to-face with overseas investors and disclose financial, operational, and strategic information. Such mistrust makes investing procedures ambiguous and deceitful
In terms of financial reporting, Vietnamese accounting rules differ significantly from International Financial Reporting rules (IFRS), making it extremely hard for foreign investors to understand a Vietnamese company’s profits and losses (P&L). There are also no official requirements to disseminate company information in English or even to need the business language to be Vietnamese. That means more costs are spent on translation, not to mention the trickiness in using words can easily discourage investors from comprehension.
3. Cultural change
Deloitte estimated that unfit cultural integration is a key cause of around 30% of unsuccessful M&As. Bain & Company had the same assessment, highlighting cultural integration as the leading reason for mass failures of merger and acquisition deals.. This resonates with Vietnam’s M&A market, where companies feel so thrilled about the prospect of market expansion from a merger that they ignore the hidden human and cultural considerations.
Main challenges:
The most obvious, hard-to-avoid mistake during M&A integration in Vietnam is the urge to rush through the process. These deals, from small-sized to mega, are typically long, unpredictable, and sometimes unforgettable quests fraught with risks, the bigger the harder. Local suppliers, most of the time, are underprepared for the substantial time and effort required to put in an M&A transaction, while foreign investors, sadly, underestimate the truth that deadlines will be breached. This causes a strong disagreement, as a lack of optimism from one party and an overly optimistic attitude from the other would result in objective dissonance between the parties, perhaps leading cancellation of the transaction and the waste of large resources.
Furthermore, while creating the deal structure, the parties sometimes forget the closing and post-close stages, which are critical for cultural integration. It typically takes months, if not years, for two cultures to converge and establish common ground.
Insights about merging businesses:
Strong Asian influence in local thinking and behavior, with people viewing the company as their “child” and rarely wanting to sell it, still dominates, pressuring international investors to go with the flow or become strategic during the process. As a result, many domestic businesses remain apprehensive about mergers and acquisitions, rather than seeing them as an opportunity for growth.
The choice of structure can be influenced by a variety of factors, including the legal framework in Vietnam, the type of acquisition, the type of business activity, and even the connection between the target and buyer. For foreign investors, current foreign ownership limitations and requirements can have a substantial influence on M&A deal structures. Therefore, they must guarantee that the proposed structure works from a Vietnamese viewpoint and be willing to examine alternatives at the beginning.
4. Keeping things going for M&A integration in Vietnam
The main issue in combining businesses is maintaining pace. Integration must occur in parallel with ‘business as usual, not at the price of it. To address this difficulty, a thorough set of Key Performance Indicators (KPIs) must be defined from the start, including both business activities and the integration process.
Overall, while considering M&A transactions and then integrations, it is important to keep in mind that the Vietnamese legal framework is different from the West. Along with considerable possibility, there are significant cultural and administrative distinctions that must be understood to successfully perform investments or M&A integration in Vietnam.
At PLF Consulting US LLC, we help investors enter and grow in Vietnam and Canada with strategies tailored to their business goals. Beyond ensuring legal compliance, we support operational efficiency and long-term market success. Whether you’re pursuing a market entry, business expansion, or M&A deal, our expertise in Doing Business in Vietnam and Mergers & Acquisitions can give you a competitive edge.
Contact PLF Consulting US LLC to schedule your Free Initial 30-Minute Consultation.
