Due diligence is a key component in the Mergers and Acquisitions (M&A) process in Vietnam, giving investors a complete picture of a company before entering into a proposed transaction.

Euromonitor International ranked Vietnam as the world's second largest attractive M&A market out of 50 economies.

In addition to legal and financial due diligence, Vietnam Briefing deals with commercial and IT due diligence, which can help investors minimize risk and achieve sustainable value growth through an M&A transaction.

Despite COVID-19 Vietnam remains an attractive M&A market because of its business landscape and now also because of its well-controlled measures to combat the pandemic. Most recently, Vietnam was ranked by Euromonitor International as the world's second most attractive M&A market among 50 economies. The ranking reflects the expected level of investment, activity and attractiveness in the global M&A market.

After our previous article on legal and financial due diligence, we will cover the commercial and IT due diligence, which for most investors forms the basis of due diligence in an M&A.

Commercial Due Diligence

Commercial due diligence examines aspects of the target company's market positioning and market share, including the growth drivers and future prospects. It is a step-by-step process that determines the overall value of a target company's M&A.

This aspect is vital and is often done in conjunction with legal and financial due diligence.

Commercial due diligence can deal with the following aspects:

Company data

This aspect deals with the company's key products and services, as well as the definition of its revenues and profits. He also analyzes the core strategies and structure of the target company as well as its unique selling proposition (USP).

Production, purchasing, suppliers and supply chain

Given Vietnam's growth as a manufacturing base in Asia and the fact that several exporters are relocating their operations from China, this is a significant factor. This aspect concerns the target company's production capacity, the number of factories it operates, and whether its manufacturing facilities can meet future demand. Supplier and distribution agreements should also be reviewed, including the credit period granted by the supplier.

Such factors help in creating a detailed analysis of how well the company is doing in terms of production and delivery, as this ultimately determines revenue and investments.

Organization and employees

This aspect relates to the quality of the target company's workforce. Investors should review current employee incentives, employee turnover rates, severance pay, and succession plans to determine if they need to be changed after the merger or acquisition is complete. The above factors help in assessing the internal environment of the target company.

Market environment

The market environment relates to the industry in which the target company operates as this defines its future growth aspects. This will differ from industry to industry, such as from the IT to the aviation industry or from the shoe industry. The analysis of the market environment can refer to the market size and growth rates, the market structure, the current market trends or whether it is a buyer's or a seller's market.

Competitive landscape

The competitive landscape looks at the commercial due diligence process on a microeconomic level. It examines the main competitors and the strategies needed to overcome them.

Customer and sales analysis

This is an important aspect and is directly related to profits. During the analysis, the buyer can take a closer look at the business-to-business (B2B) or business-to-consumer (B2C) model of the target company. It can also look at the target company's credit policy and its debt management policy. This can then give a realistic view of the company's standing and whether the M&A deal will bring value to the company.

IT due diligence review

Conducting an IT due diligence review helps identify the key skills, risks, and costs that can affect the company's value and investments. This type of due diligence examines the operation or financial risks of the target company in relation to its IT environment. The buyer can also view current IT operating costs as well as future growth and expenses.

Variations in the level of IT infrastructure between the target company and the acquiring company can create risks in the integration and in possible future operations. It is therefore imperative to examine basic IT systems such as ERP, CRM and supply chain management to ensure that the companies are aligned.

The key elements that need to be included in the due diligence process are

Software
the hardware
Cyber ​​and network security
IT support staff
Internet and telecommunications network
Initiate and plan IT due diligence reviews
Discovery of risks
Risk assessment and analysis
IT due diligence report

Hardware

This includes desktops, laptops, servers, storage devices, printers, mainframes, etc. Investors should understand who owns the devices and how much they are worth. Will an upgrade be necessary and how reliable the equipment is.

Cyber ​​and network security

It is important to assess the target company's vulnerability to a cyber attack. Data encryption programs, network firewalls, online payment security, guidelines on acceptable use of hardware and software, etc.

IT support

Assess the company's technical support group, the number of IT staff employed, and their individual roles and training programs. Assess whether further training is required.

Internet and telecommunications network

Examine the target company's current Internet and telecommunications facility and see if it will help identify the organization of the company's computer systems and preferred methods of communication between employees and customers.

Initiate and plan IT due diligence reviews

At this stage - the buyer reviews the strategic goals and project vision of the M&A deal.

Risk assessment and training

An application is tailored and developed for the target company. Items in question should include IT Personnel and Organization, Tools, Applications, IT Infrastructure, Controls and Governance. This is usually done through data requests and visitshey on site.

Risk assessment and analysis

This phase involves a full risk assessment based on any operational deficiencies that could affect the M&A process or post-deal integration. If possible, there should be procedures to mitigate the risk and any costs that may arise.

IT due diligence report

In this final phase, the most important findings and recommendations should be worked out and linked to the goals of the deal. It should contain a summary of the target company and be written in a language that non-IT professionals can understand.