This post is intended to address the question of how a typical acquisition of a Vietnamese startup takes place in practice.
From a deal structure’s perspective, an investment in local startups by foreign investors (e.g. – funds, foreign companies) can be normally implemented in the following steps:
|Step 1||Most of founders seek to divest the real target in Vietnam (VietCo) by asking one of them (the Staying Founder) to hold all the VietCo’s shares on trust their behalf.|
|Step 2||Founders would set up a company abroad, favorably Singapore (the SingCo). The SingCo’s shareholding structure would basically reflect that of VietCo before the divestment in Step 1 above.
Note: For detailed analysis on pros and cons of using a Singaporean vehicle, please refer to this post: Investment in Vietnam via Singapore: Why both Local Founders and Foreign Investors Love it?.
|Step 3||SingCo would find it way back to Vietnam to purchase and own 100% shares (or near that threshold) of VietCo.
As Vietnamese law stands, SingCo’s acquisition of the VietCo must be approved by Vietnamese State bodies if:
In order for SingCo to buy VietCo, SingCo has to open a so-called ‘indirect investment capital account‘ (INCA for short) in Vietnamese Dong from which transfer price is paid to the seller (e.g. – the founder who stay or VietCo itself). Please refer to the below chart on the M&A process on Vietnam’s soil for more information;
There are 02 options for the SingCo’s acquisition of VietCo. The first option is SingCo’s acquisition of shares of the Staying Founder. The second one for the SingCo to subscribe new shares issued by VietCo. Because each option presents its own pros and cons, any judgement should be made on a case by case basis.
|Step 4||The foreign investor/fund subscribes shares of SingCo and becomes the latter’s shareholders under Singaporean law.
Note: If SingCo chooses to subscribe new shares of VietCo as briefly discussed in Step 3 above, the foreign investor/fund may have to inject its money into the SingCo first. This is to ensure that the SingCo is able to afford the VietCo’s acquisition as required by Vietnamese law.
|Step 5||SingCo and VietCo would carry out a number of post-licensing process including notification of foreign shareholders to State bodies of Vietnam, amendment of corporate documents of VietCo, etc.|
 Please note that the concept of trust does not exist under Vietnamese law though. Hence, enforceability of such trust could be challenged should disputes among founders arise.
(With contribution of Mr. Nhan Le)