Case Study: A USD 15 Million M&A Deal That Collapsed at DD Over Land Issues

*Note: this case study has been anonymised — company names, locations and some details have been changed to protect client confidentiality. The legal issues and lessons are real, drawn from our M&A advisory practice.*

In M&A deals in Vietnam, there is a rule foreign investors usually believe only after paying for it: land is where most deals are buried. Not finance, not tax, not labour — but the land under the factory, the thing that seemed settled because “there is a land certificate”.

The deal in this article was worth USD 15 million. The buyer was a regional manufacturing group; the seller a Vietnamese family company owning a well-run factory with stable revenue and international customers. Every financial metric looked good. The deal collapsed at legal due diligence — and the entire cause lay in the land.

Contents

• 1. Deal background: USD 15 million for a well-run factory
• 2. Legal due diligence: when the land file started to ‘smell’
• 3. Red flag one: annually-paid leased land valued as if owned
• 4. Red flag two: part of the factory on land not yet converted in purpose
• 5. Red flag three: a ‘clean’ certificate but the assets mortgaged to a bank
• 6. Red flag four: a pending master plan hanging over part of the area
• 7. Red flag five: an unresolved boundary dispute with the neighbouring household
• 8. The decision to walk away and the cost of walking away late
• 9. Lessons: what land DD in M&A must do differently
• 10. Frequently asked questions
• 11. When to work with counsel

1. Deal background: USD 15 million for a well-run factory

The target company was a consumer-goods manufacturer with a factory in a southern province, operating for over 15 years and owning a brand known in the domestic market. The buyer — a regional group expanding into Vietnam — valued the company at USD 15 million on a discounted cash flow basis, with real estate value (workshops on more than 2 hectares of land) accounting for a significant share.

The deal was structured as a 100% equity purchase. The parties signed a memorandum of understanding (MOU) with a 90-day exclusivity clause and a good-faith deposit, then entered comprehensive due diligence: financial, tax, labour and legal. We handled the legal workstream, and land was the first item checked — as in every M&A deal we advise on in Vietnam.

2. Legal due diligence: when the land file started to “smell”

The land file the seller initially provided looked very “clean”: one land use right certificate in the target company’s name, over 2 hectares, for non-agricultural production purposes, with a term running to 2058 — plus a real estate valuation report from a reputable appraiser.

Problems began to surface when we cross-checked the original documents against reality and made independent enquiries with the competent authorities. Within three weeks, five red flags appeared in sequence — each individually manageable, but together painting a picture the buyer could not accept.

3. Red flag one: annually-paid leased land valued as if owned

The first and most serious red flag: the land was in fact leased land with annual rental payments — not allocated land with land use fees paid, nor lump-sum leased land. The certificate stated the land-use form clearly — but the valuation report applied a methodology as if the company held a stable, long-term, freely transferable land use right.

Under the 2024 Land Law (31/2024/QH15), an annual-rent land lessee holds a far narrower bundle of rights: no right to transfer the land use right, no right to mortgage the land use right (only to mortgage its own land-attached assets in certain cases), with the use right dependent on continued annual payments. The land’s real economic value to the buyer — in the worst case of State recovery at term expiry — was some 30–40% below the valuation report’s figure.

This is the classic valuation error in Vietnamese M&A: the seller (inadvertently or deliberately) values the real estate at “market land prices”, while the law grants only a term lease.

4. Red flag two: part of the factory on land not yet converted in purpose

Field measurement against the plot map revealed about 3,000 m² of warehouse and raw-material yard sitting on land still recorded as agricultural on the certificate — the land-use-purpose conversion to non-agricultural land had never been completed.

The legal consequence is clear: using land for the wrong purpose violates land law, punishable by administrative sanction and an order to restore the original state — meaning, in the worst case, this warehouse section could face demolition. The seller explained that “the locality knows and does not enforce”, but for a listed-group buyer, such verbal assurance carries no weight in a risk-management report.

5. Red flag three: a “clean” certificate but the assets mortgaged to a bank

A search at the secured-transactions registry showed the entire land use right and land-attached assets mortgaged to a commercial bank securing the target company’s loan of about VND 60 billion. The mortgage itself was not the problem — the problem was the seller never mentioned it during price negotiations, and the MOU contained no provision on discharge before completion.

In a 100% equity purchase structure, the bank debt theoretically stays in the company after the change of ownership — but the risk is this: if post-M&A cash flow cannot service the debt, the bank may enforce against the secured assets — the very factory the buyer just paid USD 15 million to own. Discharge had to be a condition precedent to completion — and this VND 60 billion figure completely changed the price structure.

6. Red flag four: a pending master plan hanging over part of the area

A check of the district-level land-use plan showed about 5,000 m² of the 2-plus hectares falling within an approved road-traffic planning area. This is the familiar “suspended planning” every Vietnamese business knows: the plan exists but nobody knows when it will be implemented, and people keep using the land normally.

For the buyer, the issue was not whether the road would be built, but the uncertainty: if the State recovered these 5,000 m² during the remaining lease term, the plant would lose part of its yard and face major costs reorganising the site. In valuation, the plan-encumbered area had to be deeply discounted — and no standard formula could make both sides agree on the discount.

7. Red flag five: an unresolved boundary dispute with the neighbouring household

The final red flag was very “Vietnamese” in character: a boundary dispute with an adjacent household over about 200 m² of border land. The case had been through commune-level mediation without success and was sitting with the district authorities. The disputed area was not large, but its nature was serious: an unresolved land dispute can freeze every administrative procedure on the plot — from transfer and mortgage to certificate adjustment.

The seller dismissed it as “a small matter, neighbours will sort it out”. The buyer — with regional M&A experience — understood that nothing is “small” when it can freeze the entire legal file of the core asset.

8. The decision to walk away and the cost of walking away late

Once the DD report was complete, the parties entered price renegotiation. The buyer proposed a 35% price reduction with a long list of conditions precedent: bank discharge, completion of the 3,000 m² purpose conversion, compensation undertakings if the plan-encumbered land were recovered, and final resolution of the boundary dispute. The seller — a family company with a “my land is gold” mindset — refused, accusing the buyer of “nitpicking”.

The deal collapsed after five months of negotiation. The buyer’s sunk costs: financial, legal and valuation advisory fees, travel expenses and — most expensive — five months of the M&A team’s time. Estimated opportunity loss and sunk costs ran into the hundreds of thousands of US dollars.

The most expensive lesson was not the five red flags — it was this: had land DD been done before signing the MOU and placing the deposit, the buyer could have stopped in week three at one-tenth the cost. In this deal, land DD was sequenced after financial DD because “finance decides the price”. Reality proved the opposite.

9. Lessons: what land DD in M&A must do differently

From this deal and dozens like it, we distil the standard land DD process for M&A in Vietnam:

1. Land DD goes first, not last. The land file must be checked right after signing the non-disclosure agreement (NDA), before deep price negotiation. Land is the “necessary condition” — if the land has structural problems, every financial figure is meaningless.

2. Never trust copies — verify originals and enquire independently. Certificates, mortgage records and planning documents must all be verified with the competent authorities, not just taken from the seller’s file.

3. Survey the site against the plot map. Gaps between actual use and legal records are the source of most risks — like the 3,000 m² of unconverted land in this case.

4. Valuation must reflect the true nature of the land use right. Annual-rent leased land cannot be valued as long-term owned land. The buyer should engage an independent valuer who understands Vietnamese land law.

5. Turn DD findings into contract terms. Every identified risk must be “translated” into: conditions precedent, representations and warranties, retention/escrow mechanisms and indemnity clauses in the sale and purchase agreement (SPA). Thorough DD with a thin SPA still loses money.

10. Frequently asked questions

Why is land the biggest risk in M&A deals in Vietnam?

Because land in Vietnam belongs to the entire people; enterprises hold only land use rights in various forms (allocation, lease with lump-sum or annual payment), each conferring a different bundle of rights. Enterprise valuations often include real estate value, but if the land use right is defective (purpose not converted, mortgaged, encumbered by planning, disputed), the real value can be far below the valuation.

What must legal land due diligence in M&A check?

At minimum: the land use right certificate (validity, area, purpose, term); the form of land use (allocation/lease, lump-sum/annual payment); mortgage and seizure status; land-use planning; financial obligations on the land (land rent, taxes); boundary disputes; and consistency between actual use and the purpose stated on the certificate.

Does annually-paid leased land count towards enterprise value in M&A?

As a rule, an annual-rent land lessee has no right to transfer the land use right like an allocatee or lump-sum lessee; recognised value is mainly the value of land-attached assets and the locational advantage over the remaining lease term. Deal valuation must reflect the true nature of this right — the very point that killed the deal in this case study.

How should land risks found at DD be handled: price cut, security or walk away?

It depends on severity. Remediable risks (e.g. completing purpose conversion) can be handled through conditions precedent or retention/escrow mechanisms. Structural risks (land that cannot be regularised, subject to recovery planning) usually lead to deep price renegotiation or walking away — deciding to stop early is always cheaper than stopping late.

Can the buyer sue the seller if land risks emerge after M&A completion?

Yes, if the sale contract contains representations and warranties on the legal status of the land and a compensation mechanism for breach. DD findings must therefore be “translated” into specific protective clauses in the SPA — thorough DD with a thin contract still loses money.

11. When to work with counsel

In M&A, counsel should enter before valuation, not after the MOU is signed. Work with counsel when: preparing to acquire a business with significant land assets and needing independent legal land due diligence; negotiating a price structure that accounts for land risks found at DD; drafting an SPA with a system of representations, warranties and indemnities on land; or when land defects are discovered only after completion and the prospects of claims against the seller need assessment.

FLAT Law Firm advises comprehensively on M&A deals in Vietnam — from legal due diligence (land in particular) and deal structuring to SPA negotiation and drafting. Contact our hotline 0988424851 for a preliminary risk assessment of your deal.