ASEAN membership sees M&A rise

Vietnam’s retail and consumer goods sectors have seen a lot of mergers & acquisitions by ASEAN investors

Vietnam: the spotlight for M&A

Launched on December 31, 2015, the ASEAN Economic Community (AEC) is tasked with integrating ten ASEAN economies, which together create a $2.6-trillion single market with over 600 million consumers. One area of focus for the AEC is establishing ASEAN as the world’s leading production base with a free flow of services, goods, investment, and trade.

With this in mind, companies in the region have already stepped up their mergers and acquisitions (M&A) game, long before the AEC was finalised. Among the ten countries, Vietnam in particular has received strong attention from regional buyers. It is notable that most M&A deals between Vietnam and ASEAN partners are in the consumer goods and retail sector.

In 2014, Thai- based Berli Jucker Public Company (BJC) began negotiations with Germany’s Metro Cash & Carry to take over the latter’s Vietnamese stores. The $706 million deal was finalised in early 2016. Besides acquiring Metro Vietnam, BJC also bought controlling stakes in the food and beverage distributor Phu Thai, and convenience store chain Family Mart Vietnam and renamed it B’s Mart.

Also in 2014, the Singaporean firm Freaser and Neave bought an 11 per cent share in Vietnam’s leading dairy producer Vinamilk. Later, in January 2015, Central Group from Thailand purchased a 49 per cent stake in Nguyen Kim, a leading Vietnamese electronics distribution chain.

The Central Group, Nguyen Kim duo, then acquired the Vietnamese arm of the online fashion retailer Zalora, in March 2016. In May, Central Group once again made headlines as it spent a whopping $1.05 billion to take over Vietnam-based Big C supermarkets.

Another recent mega deal on the Vietnamese M&A scene was the $1.1 billion strategic partnership between Masan and the Thai Singha Asia Holding Pte. Ltd, signed at the end of 2015. Together, the two partners aspire to serve 250 million beer customers across inland ASEAN countries.

Besides consumer goods and retail, ASEAN investors have also been active in acquiring Vietnamese industrial firms. For example, Thai conglomerate SCG has conducted a flurry of M&As with 20 Vietnamese plastic companies, such as Tin Thanh JSC, Viet Thai Group, Binh Minh Plastic and Tien Phong Plastic JSC. Back in 2012, SCG bought an 80 per cent stake in the domestic construction company Prime Group, while the Indonesian cement firm Semen Gresik took over 70 per cent of Thang Long Cement JSC’s.

Vietnamese firms, when they are on the purchasing end of the deal, often target Cambodia and Laos. The most recent example is Vinamilk, which inaugurated a new $23-million factory in Phnom Penh, Cambodia with Angkor Dairy JSC in May.

AEC and the future of M&A

Nguyen Quynh Lan, managing director of business information services at Stoxplus, told VIR that the AEC, thanks to its emphasis on intra-ASEAN collaboration, will make Vietnam an attractive destination for economic integration and regional M&As. Moreover, ASEAN companies in retail, agricultural products, building materials, and construction are often tempted by Vietnam’s abundance of natural resources and growing consumer demand.

“I believe ASEAN investors will continue to look for opportunities where they have a competitive advantage, and Vietnam can offer opportunities for growth. It should be a win-win proposition for both sides in the deal. I also think that not just ASEAN members, but many other foreign investors, will seek cross-border M&A opportunities from the equitisation of state-owned enterprises (SOEs) in Vietnam,” Lan said.

Similarly, Dr Christopher Kummer, an expert at the Austria-based Institute of Mergers, Acquisition and Alliances, told VIR that the growth of private companies and equitised SOEs will facilitate more cross-border M&A activities in Vietnam. The researcher expected a rally in M&A deals in the coming years, especially in consumer and retail sectors.

Other experts noted that for many ASEAN companies, M&A is a great alternative to direct investment in Vietnam. By conducting M&As with Vietnamese firms, ASEAN investors can take advantage of the domestic partner’s brand name, local know-how and existing consumer base. This will quicken the ASEAN buyer’s venture into the Vietnamese market following the AEC.

This method is especially popular for Thai companies, who have flocked into the consumer goods, industrial, and retail sectors of Vietnam, via a range of M&As. Lan from Stoxplus commented that as the Thai economy slows down in recent years, Thai conglomerates must now pursue growth overseas. In this context, Vietnam is an attractive market due to strong economic growth, rising consumer spending, geographical proximity and cultural compatibility.

“Due to their determination, Thai investors usually offer very high prices in M&A deals with Vietnamese rubber and plastic firms. Domestic companies in this sector need 20 years to establish their brand name in Vietnam, but Thai buyers only need a year to do so, thanks to M&As. As a result, M&A’s save a lot of time and effort compared to direct investment,” said Tran Viet Anh, deputy head of the Ho Chi Minh City Association of Rubber & Plastic Companies, and director of Nam Thai Son JSC.

Ho Duc Lam, managing director of Rang Dong Plastics JSC, added that ASEAN investors want to acquire Vietnamese firms to benefit from the slew of free trade agreements that Vietnam recently signed. For example, the historic Trans-Pacific Partnership only has four out of ten ASEAN countries, and Thailand is not included on the list.

“Vietnam will soon enjoy great reductions on tariffs and access to new markets thanks to various trade deals, thus it’s understandable that ASEAN investors want to capitalise on this opportunity. A quick way to do so is via M&As with Vietnamese companies,” said Lam.

Not always a smooth ride

However, experts noted some challenges that can hinder M&A deals between Vietnamese and ASEAN investors. Firstly, according to Tran Minh Hai, managing director of Basico law firm, the Vietnamese law is still lagging behind the development of the M&A scene.

“As Vietnam grows and more complicated M&A deals are conducted, Vietnamese law must be updated to keep abreast of constant changes. For example, there’s an ongoing debate on whether M&As should be considered a form of direct investment or not, and which type of M&A should follow which rule. Thus, I look forward to more detailed regulations on M&As to reduce these problems,” said Hai.

Another controversial topic is the loss of homegrown Vietnamese brands after M&A deals with ASEAN investors. A recent example is Saigon Beer, Alcohol and Beverage Corporation (Sabeco), which has a 45 per cent share in the domestic beer market. Although the Thai beer giant ThaiBev has offered to buy Sabeco many times, the Vietnamese company kept its preference for domestic partners.

“Most ASEAN investors will keep the Vietnamese brand name after M&As because they understand that these long-standing brand names are well-respected by Vietnamese consumers. I believe that this clever strategy will continue in future M&As,” said Dr. Christopher Kummer.