Before proceeding with any M&A transaction, business owners (the Sellers) should develop a comprehensive understanding of both the advantages and disadvantages involved. This helps owners make informed assessments based on current realities and proactively adjust their M&A strategies accordingly.
Below are the key advantages and disadvantages that business owners should consider:
Major Advantages for the Seller in an M&A Transaction
- Crystallizing shareholder returns: Shareholders can crystallize their returns by transferring shares to new investors. For profitable businesses, valuation multiples may range from 10–15 times P/E (Price/Earnings), depending on the sector and market conditions. Existing shareholders may therefore secure substantial returns instead of waiting for annual profit distributions. For shareholders who do not divest (or divest only partially), a high purchase price offered by the Buyer also enhances the value of their remaining shares.
- For business owners seeking M&A as a route to access capital, expertise, or strong domestic market positions, M&A can offer opportunities to reinforce financial resources or business strategy through the incoming partner, enabling stronger long-term growth.
- In practice, many businesses experiencing financial stress or crisis turn to M&A as a means to resolve inherent issues. Having an investor involved in restructuring debt or reshaping the business model can help the company survive difficult periods, such as during COVID-19 or economic downturns.
- In an increasingly integrated economy like Vietnam, many partners from developed countries (Japan, Singapore, Europe, etc.) actively look for Vietnamese suppliers and engage in M&A discussions. Their goal is to integrate businesses into a broader ecosystem and open opportunities for collaboration, technology advancement, and market expansion.
Major Disadvantages for the Seller in an M&A Transaction
- Loss of control: A common concern among business owners is the potential loss of control, particularly when the investor acquires a majority stake—typically above 65%. In such cases, investors may impose new strategies, management changes, or operational shifts. Disputes among shareholders may arise, leading to declining business performance or litigation. In some cases, investors target acquiring strong businesses to achieve low-cost takeovers.
- Changes in corporate culture: Employees often feel anxious about adapting to a new culture or new working conditions, including the risk of layoffs during restructuring. Senior personnel are typically most affected, as these roles are often replaced by the investor’s team. Over time, the company may lose the identity that the owner spent years building.
- Confidentiality risks: During negotiations and due diligence, despite signing a Non-Disclosure Agreement (NDA), owners remain concerned about sensitive information being revealed, especially when dealing with investors from the same industry. Information leaks can seriously impact future business plans if the transaction fails.
- Potential reputational impact if the transaction fails: If negotiations ultimately break down, news may circulate in the market and negatively affect the company’s reputation.
To sum up, evaluating both advantages and disadvantages allows business owners to reassess their real needs and make decisions aligned with their goals, such as:
- Considering a share sale below 50% or 65% to lose voting rights but retain control.
- Negotiating key conditions in investment agreements—e.g., retaining key personnel for at least 1–2 years, limiting investor interference in operations, and setting a clear roadmap for cultural changes.
- Selling only a portion of shares and raising additional capital from the investor to maintain resources for future growth.
- Conducting thorough due diligence on the investor, including financial capacity, motives for M&A, funding schedule, cultural and governance changes, and post-M&A objectives.
