Corporate Due Diligence Process: A Comprehensive Checklist for M&A Transactions

What is Due Diligence?

In the context of M&A, due diligence is a thorough, methodical, and systematic investigation of every facet of a target company. It is far more than a "paperwork check"; it is a process to verify the actual value of the business.

Core Objectives of Due Diligence:

• Transparency: Providing an accurate, unbiased view of the company’s health.

• Risk Management: Assessing strengths, weaknesses, and "contingent liabilities."

• Negotiation Foundation: The results serve as a basis for adjusting the purchase price or establishing indemnity clauses in the Share Purchase Agreement (SPA).

Step 1: Legal and Regulatory Due Diligence

The goal is to examine legal compliance and identify potential liabilities that could disrupt the transaction.

• Corporate Structure & Ownership: Reviewing the corporate history since incorporation, charter capital contribution records (verifying the 90-day statutory deadline), and historical changes in shareholders or members.

• Foreign Ownership Limits (FOL): Analyzing ownership restrictions under Vietnamese law, WTO commitments, and the CPTPP regarding the target company's conditional business lines.

• Shares and Options: Reviewing preference shares, Employee Stock Ownership Plans (ESOP), or any encumbrances/pledges on shares at credit institutions.

• Procedural Execution: Advising on the sequence for notifications/registrations with the Department of Planning and Investment (DPI) and the conditions for the transfer agreement’s legal validity.

Step 2: Financial Due Diligence

Typically conducted in close coordination with independent accounting and auditing firms.

• Financial Statements: Reviewing the last 3–5 years of statements. Particular attention is paid to discrepancies between tax reports and internal management reports.

• Quality of Earnings (QofE) Analysis: Assessing the sustainability of cash flow and excluding one-time gains from non-core business activities.

• Liabilities & Contingencies: Identifying bank loans, overdue accounts payable, and third-party guarantees.

• Tax Compliance: Reviewing tax finalization status, transfer pricing risks, and existing tax incentives (and whether they remain valid post-acquisition).

Step 3: Business Licenses and Operating Conditions

• Core Licenses: Reviewing the Enterprise Registration Certificate (ERC), Investment Registration Certificate (IRC), and investment policy approvals.

• Sub-licenses: Vital for specialized industries:

  • F&B: Liquor and tobacco retail licenses; Food Safety Eligibility Certificates.

  • Hospitality & Co-working: Fire Safety Approval (PCCC); Certificates of Satisfaction of Security and Order Conditions.

• Validity: Verifying expiration dates and the ability to maintain conditions following a change in Legal Representative or capital structure.

Step 4: Human Resources and Labor Due Diligence

• Contractual Framework: Reviewing Labor Contracts, Non-Disclosure Agreements (NDA), and Non-Compete Agreements.

• Payroll & Benefits: Analyzing salary funds, bonuses, and any outstanding Social Insurance, Health Insurance, or Unemployment Insurance debts.

• Labor Disputes: Checking disciplinary records, ongoing litigation, or the risk of strikes.

• Key Personnel: Evaluating the impact of senior leadership and retention plans post-merger.

Step 5: Real Estate and Fixed Assets

• Land Use Rights (LUR): Verifying Land Use Rights Certificates (LURC), land lease contracts with the State, or sub-leases from Industrial Parks. Note the payment method (annual vs. one-time) as it affects the right to mortgage.

• Legal Status of Constructions: Reviewing Construction Permits and Certificates of Completion (Hoàn công). For assets not yet certified on the LURC, assess the risk of administrative fines or forced demolition.

• Lease Constraints: Reviewing "Right of First Refusal" clauses, landlord veto rights, or unreasonable rent escalation roadmaps.

Step 6: Vital Supplementary Aspects

• Fire Prevention and Fighting (PCCC): Checking the actual PCCC system's consistency with approved designs. This is a frequently overlooked risk that can incur massive rectification costs.

• Litigation & Disputes: Requiring the target to provide a list of proceedings in Courts or Arbitration, including bad debt disputes with customers.

• Intellectual Property (IP): Verifying ownership of Trademarks, Domain Names, software copyrights, or trade secrets. Checking protection terms and geographical scope.

Conclusion

A comprehensive due diligence checklist does more than show an investor the numbers—it reveals the "hidden icebergs" beneath the surface. Executing this process correctly and thoroughly is the key to transforming a potential deal into a resounding success.

See more at:

1) Acquisition of Assets/Real Estate from Target Company - M&A Vietnam;

2) Procedures for Investment Policy Approval and Investment Registration Certificate (IRC) in Da Nang Hi-Tech Park 2026 (2)

3) List of Projects Attracting Investment into Da Nang City for the 2026-2030 Period

4) Projects Subject to Investment Policy Approval under the Law on Investment 2025