|The first electronics retail M&A opened the doors for futher action
High time to withdraw
MWG’s purchase of TAG has been official completed after MWG spent VND850 billion ($37.4 million) buying 23.6 million shares, equalling 95 per cent of TAG’s charter capital.
According to TAG founder Tran Xuan Kien, the decision to sell came from his expectations of change in the electronic retail market through the impact of e-commerce. This is the second breakthrough of Kien as well as the Board of Directors of TAG after the decision to change the operation model of TAG from computer to electronics retail.
Notably, after the successful appearance of iPhone in 2007, the TAG Board of Directors expected that the smart phone will grow more and more and meet almost all customer demand of checking emails or surfing the web that at the time only computers could supply. With this expectation, TAG decided to change its operation model from computer to electronics retail, paving the road to its success today.
At present, TAG finds that e-commerce is growing fast across the globe and one of the sectors suffering the largest impact is electronics retail, a scene that is bound to play out in Vietnam as well. In reality, numerous electronics retailers on the world close hundreds of stores each year due to the competition of e-commerce websites like Amazon.com, Alibaba.com, and JD.com. Thus, it is high time for TAG to withdraw from this market.
However, instead of selecting Nojima Corporation, TAG’s foreign partner with a 30.9 per cent stake, TAG selected MWG, its heavyweight competitor in the electronics retail sector.
Kien stated that during the past four years of co-operation, Nojima made a significant contribution to TAG’s development, however, it respects and agrees with TAG’s decision.
Kien also added that MWG’s acquisition of TAG will ensure MWG’s development. Notably, Dien May Xanh, one of MWG’s electronics brands, is developed in districts and peri-urban areas with small-scale stores and mid- to low-price products. Meanwhile, TAG has been focusing on the central area of cities with large-scale stores and mid- to high-price products.
Regarding MWG, Tran Kinh Doanh, general director of MWG said that at present, numerous electronics retailers are operating in Vietnam but it is difficult to find a firm operating as transparently as TAG. However, it is still too soon to affirm that this M&A deal will bring massive benefits as much rides on post-M&A management. Furthermore, only 50 per cent of M&A deals in the world end in success.
First M&A deal in the sector
Normally, it is difficult to affect an M&A deal between electronic retailers. However, in TAG and MWG’s case, the leaders of the two parties only needed two meetings of one-three hours to negotiate a compromise. What makes the deal more unique is that it is the first such transaction in the Vietnamese electronics retail sector, promising to open the doors for further deals.
Kien said it was difficult for him to issue the decision to sell TAG due to his concerns about the future of more than 2,000 employees. Furthermore, he was also sad when he found out that TAG will be renamed in 12-18 months. However, Kien believed that MWG will build and develop TAG successfully because MWG’s capacity to manage store chains is better than that of TAG and other competitors.
Setting foot in other business sector
After 15 years of managing a business in the electronics retail sector, Kien has experience in developing a new business sector and close relationships with reputable partners and large-scale firms. Thus, after selling TAG, Kien, in collaboration with a number of other former leaders of TAG, is planning to set foot in the co-working space sector by opening a workspace renting service.
Kien stated that co-working space is still new to Vietnam, however, this service has seen soaring growth across the globe. The Vietnamese market has potential to develop these services because 31 per cent of Vietnamese firms have fewer than 10 employees. Besides, there are 120,000 newly-established firms each year, all potential customers of the company.
Kien expected that in the second quarter his company will open five co-working locations at office buildings with the total rental area of nearly 10,000sq.m. This will increase to 15-20 locations with the total area of 30,000-40,000sq.m.
By the end of 2017, nearly 1.2 million people across the world worked in a co-working space. While 60 per cent of all co-working spaces are not profitable, the trend has definitely been huge in the last ten years.
The majority of co-working spaces are concentrated in the hands of a few large providers, with Regus and WeWork accounting for nearly 80 per cent (approximately 1.95 million sq.m) of total leased space.
In 2018, MWG set a target revenue of over VND86 trillion ($3.78 billion), surprising the market. Notably, the corporation expected to earnVND86.39 trillion ($3.8 billion) in revenue and VND2.6 trillion ($114.49 million) in profit, up 36.5 and 18.3 per cent compared to the figures of 2016.
Despite, the common view that the targets will be difficult to reach, Tran Kinh Doanh, general director of MWG, believed that they are is feasible.
The basis for MWG’s massive revenue target is the continuous growth of the Thegioididong chain. Besides, the Dien May Xanh chain has been extended in districts and peri-urban areas, while the Bach hoa Xanh chain is expected to start to bring profit from this year. MWG plans to open an additional 1,500 stores in Ho Chi Minh City by the end of this year.
Acquiring TAG was also expected to contribute to increasing MWG’s revenue and profit. Notably, after merging the electronic retail arms of the two sides, the new electronic retail network will make up more than 30 per cent of the Vietnamese electronic retail market share. Accordingly, it will play an important role in realising the 36.5 per cent after-tax profit growth.
In the first eleven months of 2017, MWG earned VND58.96 trillion ($2.59 billion) in revenue and VND1.99 trillion ($87.6 million) in profit, signifying increases of 49 and 38 per cent compared to the figures in the same period of 2016.