A secondary sale to a private equity fund is selling an existing stake to a professional financial investor: a disciplined process, demanding diligence and valuation based on provable earnings. This article presents the process, how funds value, and the characteristic terms of a PE transaction in Vietnam — distinct from selling a stake to third parties in general (EXP-2633) and from the topic on selling stakes to foreign investment funds viewed from tax and registration procedure (FDI-LC-1238).
The PE sale process: round by round of screening
A transaction with an investment fund runs through a multi-round screening process. The first round is the anonymous teaser and the detailed information memorandum after a confidentiality agreement, on which basis the fund issues a non-binding indicative price. The second round is the letter of intent with a price range, a preliminary structure and an exclusivity period — from this point the seller pauses contact with other buyers. The third round is confirmatory diligence: the fund and its advisers dig into legal, tax, financial and commercial matters, including an earnings-quality analysis to normalise operating profit. The fourth round is negotiation of the stake sale and purchase agreement and ancillary documents, then closing when conditions precedent complete, among them registration of a foreign investor’s capital contribution or share purchase for sectors with market-access conditions under the Law on Investment 143/2025/QH15. The whole cycle with a serious fund commonly takes several months and can stop at any round, so a wise seller always keeps a backup buyer until the contract is signed.
Valuation the fund’s way
A fund values by earnings: taking the target enterprise’s adjusted operating profit — stripping abnormal costs, owner costs and non-recurring items — multiplied by a multiple drawn from comparable transactions and the fund’s sector appetite, then deducting debt and adding cash at the closing date to reach the equity value. The three variables moving price most are the quality of the adjusted profit figure, evidenced growth speed, and dependence on a few customers or key individuals. Unlike a strategic buyer paying for synergy value, a fund pays for future cash flow and resale capacity after some years of holding, so a fund’s price is usually more disciplined and comes with a tighter risk-sharing structure: part of the price retained, part paid on post-deal business results, and normalised working-capital adjustment. A seller wanting to maximise price with a fund must invest beforehand in financial reporting quality and in reducing personal dependence points in operations.
Characteristic terms of a PE transaction
A contract with a fund has four characteristic term groups. The warranty group: a system of representations and warranties on the enterprise’s legal, tax and financial status with indemnity caps, de-minimis baskets and survival periods for each warranty group. The price group: a mechanism retaining part of the purchase price in an escrow account or by direct deduction, with release conditions and timing tied to no indemnity claims arising. The post-deal governance group: where the fund buys a majority, it requires board seats, veto rights over material decisions and periodic financial reporting mechanics; where the seller keeps a minority stake, tag-along and anti-dilution terms are additionally needed. The next-exit group: drag-along rights and undertakings on the fund’s exit roadmap, because a seller staying in will be directly affected when the fund sells on to a third buyer. All these terms must be read together as one risk-allocation system, not bargained clause by isolated clause.
Frequently Asked Questions
Process for selling to PE?
The process comprises: the seller prepares a teaser and a data room; the fund signs a confidentiality agreement and gives an indicative price after an initial review round; a letter of intent with an exclusivity period; in-depth diligence on legal, financial, tax and commercial matters; negotiation of the sale and purchase agreement; and closing after conditions precedent are completed, including registration of a foreign investor’s capital contribution or share purchase where the law requires it.
Due diligence?
A fund’s diligence is deeper and wider than an ordinary buyer’s: beyond legal and tax, the fund examines earnings quality, customer concentration, growth capacity and the management team, usually through independent advisers the fund appoints. The seller should prepare the data room and a vendor due diligence report in advance to shorten time and reduce price-chipping points in the diligence round.
Valuation?
A fund’s valuation rests mainly on the multiple of adjusted operating profit and growth prospects, benchmarked against comparable transactions. The final price is adjusted by diligence results, normalised debt and working capital levels, and risk-sharing structures such as retained price or earn-out. The fund’s return expectations over its holding period are the background variable deciding the price it can pay.
Terms?
Material terms include: the seller’s system of warranties and indemnities with caps and periods; the purchase-price retention mechanism and release conditions; conditions precedent and interim-period undertakings; the fund’s post-deal governance rights such as board seats and vetoes over material matters; and the fund’s next exit mechanics, which a seller retaining a stake must care about.
This article has been quality-reviewed by the FLAW AI Legal Council
