Financial and tax due diligence on the acquisition of a packaging plant

Background

The client is the Vietnam subsidiary of a regional packaging group seeking to expand its corrugated box capacity for electronics and consumer goods customers. The target was a domestic paper packaging plant, family-owned and managed for almost 20 years, with around 450 employees. The seller provided three years of audited financial statements and a business plan, but the buyer needed a clear view of earnings quality and of risks not visible in the accounts.

Challenges

• A short timeline: only seven weeks before the binding agreement was due to be signed.
• Part of the revenue and costs passed through companies related to the owning family.
• Land, environmental and fire safety records for the plant were incomplete.
• The buyer needed a bilingual report for the group's investment committee overseas.

Our approach

• Week 1 — planning: a prioritised information request list, data room set-up and an interview schedule with the seller's management.
• Weeks 2–4 — financial due diligence: analysis of adjusted earnings (removing non-recurring items and related-party effects), normalised working capital, and debt and debt-like items.
• Weeks 3–5 — tax due diligence: review of tax returns for years not yet audited by the authorities, incentives being claimed, transfer pricing exposure and input invoices.
• Weeks 4–6 — key legal matters: worked with lawyers to review land use rights, environmental permits, major customer contracts and labour disputes.
• Weeks 6–7 — reporting and negotiation: a bilingual findings report with recommendations on price adjustments, representations and warranties, and a retention mechanism.

Results

The adjustments identified reduced net asset value by about 11% compared with the seller's figures, mainly due to provisions for doubtful receivables, deferred major maintenance and contingent tax liabilities. Adjusted earnings were about 8% below the business plan. Based on the report, the buyer renegotiated the price and added 14 warranty clauses and an 18-month retention. The transaction was signed and completed roughly four months later.

“Due diligence is not about breaking a deal; it is about letting the buyer know exactly what it is buying and at what price that makes sense. Most findings are handled through contract terms, not by walking away.” — Mr Dinh Quang Vinh, Partner, Transactions & M&A, Corvane Advisory

Lessons learned

With family-owned businesses, related-party transactions should be clarified first because they directly affect earnings after takeover. Tax and legal reviews should run in parallel with financial due diligence so their findings feed into negotiations in time. The report must translate findings into concrete proposals for the purchase agreement. After completion, Corvane continued to support the buyer through its first 100 days, including converting the accounting system to group standards and setting up payment controls.