Contents of business appraisal before purchase and sale transactions

The content of business appraisal plays a key role in the merger and acquisition (M&A) process. This comprehensive appraisal process helps investors accurately assess the financial, legal situation, and business operations of the target business, thereby making appropriate investment decisions and minimizing risks in M&A transactions. The article below will analyze in detail the contents that need to be appraised when conducting business purchase and sale transactions.

What is business appraisal? The role of business appraisal in M&A deals

Due Diligence is a comprehensive assessment process of the target business’s operating situation before conducting a merger or acquisition transaction. This process helps investors have an accurate view of the true value of the business. Business appraisal plays a decisive role in the success of M&A deals.

In the context of Vietnam’s increasingly vibrant M&A market, business appraisal becomes more urgent than ever. According to statistics, about 70% of failed M&A deals stem from lack of information or inaccurate assessment of the target business. A thorough appraisal process helps investors detect potential risks and make the right investment decisions.

Business appraisal plays a key role in M&A deals in Vietnam, where the market is increasingly developing and competitive. Through appraisal, investors can:

• Capture information: Understand clearly the financial, legal, operational and commercial situation of the target business.
• Risk assessment: Identify potential risks, including legal risks, financial risks, operational risks and commercial risks.
• Negotiation support: Provide information and basis to effectively negotiate prices and contract terms.
• Make investment decisions: Make accurate investment decisions, limit risks and optimize benefits.

Business appraisal in M&A is not simply checking financial statements. It includes consideration of all aspects of the business, from legal and financial to operational and commercial.

For example: In a manufacturing business acquisition, due diligence will include checking manufacturing licenses, assessing financial status, checking production lines, assessing management capabilities, and analyzing product markets.

Contents of business appraisal

Business appraisal is a complex process, requiring professional knowledge and practical experience. Below are the main contents that need to be assessed:

Legal appraisal

Legal Due Diligence includes reviewing all legal documents, business licenses, contracts and related legal documents. Pay special attention to legal compliance in business operations and potential legal risks.

Main contents:

• Establishment documents: Check the legality and completeness of the Business Registration Certificate, Company Charter, decisions of competent authorities on establishment and change of business registration content.
• Contracts: Review important types of business contracts, including sales contracts, labor contracts, factory rental contracts, loan contracts,…
• Intellectual property: Check the intellectual property rights of the business for intellectual assets such as patents, trademarks, copyrights, utility solutions,…
• Legal compliance: Evaluate businesses’ compliance with the provisions of Vietnamese law, including Law on Enterprise, Labor Code, Law on Tax, Law on Investment,…
• Disputes and litigation: Identify ongoing or potential disputes and lawsuits, and assess related legal risks.

Financial appraisal

Financial Due Diligence is one of the core contents of the business appraisal process. This process focuses on evaluating the business’s financial statements, cash flow, capital structure and business performance. Financial indicators such as revenue, profit, and profitability ratio are analyzed in detail to determine the true value of the business.

Main contents:

• Financial reports: Carefully analyze the balance sheet, business performance reports, and cash flow reports of the business for the most recent 3-5 years.
• Revenue, profit: Analyze revenue, costs, gross profit, net profit, important financial indicators such as profit margin, return on equity (ROE), return on total assets (ROA).
• Assets and liabilities: Evaluate the value of the enterprise’s assets, including short-term assets, long-term assets, analysis of debt structure, debt payment ability and financial safety indicators.
• Cash flow: Analyze operating cash flow, investment cash flow, and financial cash flow to evaluate the business’s ability to generate cash.
• Internal control system: Evaluate the accounting, financial management, and internal control systems of the enterprise to identify risks of fraud and errors.

Commercial appraisal

Commercial Due Diligence evaluates a business’s position in the market, business strategy, operating model and development potential. SWOT analysis and competitive assessment are indispensable tools in this process.

Main contents:

• Market: Analyze market size, growth potential, development trends, factors affecting the market, market segmentation.
• Customers: Analyze customer structure, consumer behavior, customer loyalty, customer approach methods.
• Competitors: Analyze competitors, including market share, strengths, weaknesses, and competitive strategies.
• Business strategy: Evaluate product, pricing, distribution, marketing strategies, evaluate effectiveness and competitiveness.

Operational appraisal

Operational appraisal focuses on evaluating the management capacity, organizational structure, operating processes and production and business efficiency of the enterprise.

Main contents:

• Management capacity: Evaluate the management team, including professional qualifications, experience, leadership ability, and professional ethics.
• Organizational structure: Analyze the organizational chart, management model, assign responsibilities and powers between departments.
• Operating process: Review production, business, management processes, evaluate efficiency and suitability for business scale and industry.
• Human resources: Evaluate the quantity and quality of human resources, human resource policies, working environment, and evaluate labor productivity.
• Technology: Evaluate production technology, information systems, technology infrastructure, evaluate the level of automation, and apply information technology in management.

>>> See more: Brand valuation: Evaluation methods and criteria.

Steps to conduct business appraisal

The business appraisal process is carried out according to the following steps:

Step 1: Make an appraisal plan: Clearly define appraisal objectives, appraisal scope, appraisal methods, implementation time, necessary resources, and develop a detailed plan.

Step 2: Collect information: Request the business to provide all relevant records and documents (financial reports, legal records, documents on business activities,…), conduct interviews Consulting management, employees, and collect information from external sources such as government agencies, partners, and customers.

Step 3: Analyze information: Carefully analyze collected documents and data, assess legal, financial, operational, and commercial risks, determine business value using appropriate valuation methods. fit.

Step 4: Summarize appraisal results, draw conclusions and make decisions.

For example: During the planning step, the investor and consulting firm will jointly determine the appraisal objectives (for example, assess risks before acquiring a business), the scope of appraisal (for example, focus on financial and legal due diligence), and due diligence methods (for example: document analysis, interviews, market intelligence gathering).

Business appraisal consulting service before buying and selling transactions at Long Phan

We provide professional, comprehensive business appraisal consulting services, helping customers:

• Comprehensive appraisal of corporate financial situation. Analyze financial statements, evaluate business performance, determine business value.
• Review the documents of the target business and assess risks.
• Analyze the market, competitors, business strategies, evaluate development potential.
• Determine business value objectively and accurately using appropriate valuation methods.
• Support customers in negotiating business purchases, building negotiation strategies, and reaching beneficial agreements.
• Drafting all types of contracts related to business purchase and sale transactions, ensuring customers’ rights.
• Post-deal consulting and restructuring.

With its experience and reputation, Long Phan is committed to providing customers with high-quality business appraisal consulting services, meeting all requirements and contributing to the success of business purchase and sale transactions.

Business appraisal is an indispensable step before deciding to buy or sell a business. To ensure safety and efficiency of transactions, customers should choose a reputable and professional consulting unit. Long Phan, with a team of experienced experts, is committed to accompanying customers throughout the appraisal process, helping customers make wise and successful investment decisions. Contact Long Phan via the hotline 0906735386 for advice and support.