Due Diligence Checklist for F&B Acquisitions in Malaysia

F&B acquisitions in Malaysia carry a specific set of risks that a generic due diligence framework will not fully capture. Beyond the standard financial and legal review, you are dealing with perishable inventory, heavily regulated licences, lease-dependent operations, and often a culture and brand that exists entirely in the head of one person. This checklist is structured as a working document — take it into your data room and work through it systematically.

Financial Due Diligence

Financial DD in F&B has some distinctive features. Revenue is mostly cash-based and high volume — which means it is also manipulable. Be disciplined here.

Profit and Loss — Three Years Minimum

Request audited accounts for the last three financial years plus the most recent six months of management accounts. Look for:

Revenue trend by outlet or product line, not just total revenue
Gross margin consistency — F&B gross margins are typically 55–70% for casual dining, 40–55% for QSR, 65–75% for packaged food. Unusual swings signal either revenue manipulation or cost structure changes
Raw material cost as a percentage of revenue — if it is declining sharply with no change in menu pricing or supplier contracts, ask why
Staff costs as a percentage of revenue — benchmark against industry; F&B typically runs 25–35% of revenue in labour

SST Compliance

Malaysia's Sales and Service Tax replaced GST in 2018. For F&B businesses, review:

SST registration status (restaurants with annual turnover above RM 1.5M are required to be registered for service tax at 6%)
Historical SST filings — have returns been filed on time, and do they reconcile to the audited revenue figures?
Any pending RMCD (Royal Malaysian Customs Department) assessments or disputes

Example:

A restaurant chain in Shah Alam showed RM 4.2 million in audited revenue but only RM 2.8 million declared for service tax purposes. When questioned, management explained that takeaway orders were treated as exempt. This is partially correct for food — service tax typically applies to dine-in only — but the revenue split between dine-in and takeaway had never been formally documented. This created a potential contingent liability of RM 84,000 in underpaid service tax plus penalties. The buyer negotiated a specific indemnity from the seller for any RMCD assessments arising from periods prior to completion.

Related-Party Transactions

In family-owned F&B businesses, this is almost always material. Look for:

Supplies purchased from related-party companies at above-market prices — common with food ingredient suppliers where the owner has a stake in the supplier
Rentals paid to related-party landlords — benchmark against comparable locations
Management fees paid to a related-party holding company
Loans to or from directors — these create both tax complexity and governance concerns

Capital Expenditure

F&B businesses require ongoing reinvestment in kitchen equipment, renovations, and fit-outs. Establish:

What has been spent on capex in each of the last three years?
Is the equipment maintained, or has it been sweated to inflate short-term EBITDA?
What is the replacement capex schedule for major items (commercial refrigeration units, cooking equipment, POS systems)?

Legal Due Diligence

Business Licences and Permits

This is where F&B DD most often reveals deal-critical issues. Every operating location requires:

Business licence from the local authority (Majlis Perbandaran / Majlis Bandaraya) — verify expiry dates; some are annual
Food premises licence under the Food Act 1983 — separate from the business licence
Signboard licence — often overlooked; non-compliance can result in removal orders
Liquor licence if applicable — these are notoriously difficult to transfer and may be personally held rather than by the company

Halal Certification

For any F&B business operating in the Malaysian market, Halal status is commercially critical even for non-Muslim-owned businesses. Verify:

Is JAKIM Halal certification current and valid?
Does it cover all relevant products and production facilities?
Are there any conditions or restrictions attached to the certification?
If certification has lapsed, what is the status of renewal?

Note that Halal certification is held by the entity and does not automatically transfer in a share sale — JAKIM requires notification of ownership changes.

Food Handler Certificates

All food handlers (those who directly handle open food) must hold a valid food handler certificate under the Food Hygiene Regulations 2009. Request a current list of staff and verify certificates are in place. Non-compliance can result in enforcement action by the Ministry of Health.

Lease Agreements

The lease is often the most important document in an F&B acquisition:

Remaining lease term — anything under three years creates significant risk
Renewal rights — are they contractual or merely by landlord consent?
Assignment clause — can the lease be assigned in a share sale? (Usually yes, since the legal entity does not change, but some leases require landlord consent for change of beneficial ownership)
Rent escalation clauses — fixed annual increases vs CPI-linked vs market review
Exclusivity provisions — does the lease restrict what can be sold on the premises?

Franchise Agreements

If the business operates under a franchise, obtain the master franchise agreement:

Territory rights and exclusivity
Renewal conditions
Transfer provisions — most franchise agreements require franchisor consent to change ownership; failure to obtain consent can void the franchise
Performance requirements and whether they have been met

Operational Due Diligence

Key Staff Retention

Identify the five to ten people the business genuinely cannot function without — typically the head chef or kitchen manager, outlet managers, and the person who manages supplier relationships. For each, establish:

Are they employed formally with a written employment contract?
What is their remuneration structure?
Have they been told about the transaction? If not, what is the retention plan?
Is there a non-compete or non-solicitation obligation in their contract?

Supplier Contracts

Request all active supplier agreements, particularly for key ingredients. Verify:

Are prices locked in, or subject to frequent renegotiation?
Are there minimum purchase commitments the business must meet?
Does the supplier agreement survive a change of ownership?

Social Media and Digital Assets

Increasingly, the brand equity in an F&B business lives online. Verify:

Who owns the Instagram, TikTok, and Facebook accounts — the company, or the owner personally?
Domain name ownership and website hosting — are these in the company's name?
Google My Business listings — accessible to the company?

Kitchen Equipment

Distinguish between owned and leased equipment. For leased items:

What are the remaining lease terms?
Do the leases contain early termination clauses?
Can the leases be assigned?

Regulatory Compliance

SSM Filings

Verify that all Companies Commission of Malaysia (SSM) annual returns and financial statements have been filed on time. Outstanding filings or penalties create compliance risk and administrative burden for the buyer.

Employment Records

Request a full headcount list with employment status (permanent, contract, part-time), remuneration details, and any outstanding disciplinary matters. Check:

Are all employees on formal written contracts?
Are foreign workers properly documented with valid work permits?
Have EPF (KWSP) and SOCSO contributions been made on time and in full? Request six months of EPF and SOCSO payment receipts.

Environmental and Health Compliance

For food manufacturing or processing facilities, check:

EIA (Environmental Impact Assessment) compliance if applicable
Effluent discharge licences if there is significant wastewater
Food safety audit records under FSMS (Food Safety Management System)