Cards in Vietnam’s favour for M&A gains

How does RSM assess the mergers and acquisitions (M&A) market in Vietnam at the moment?

Le Khanh Lam, partner at RSM Vietnam

In 2019, Vietnam witnessed high-value and buoyant M&A transactions in a variety of sectors, such as real estate, banking, and retail.

Dealmaking activities maintained their momentum as more companies divested assets amid the escalation in the US-China trade dispute. We are proud to have supported more than 15 key deals across all sectors, such as real estate, logistics, education, and manufacturing last year.

In 2020, I personally have seen tremendous confidence in Vietnam from high-profile international investors, but the pandemic has taken a serious toll on the landscape and plunged the global economy into disruption, hampering appetites.

As a result, valuations have largely come down compared to the previous year. Nevertheless, we have successfully worked on more than five deals since February, focusing on manufacturing.

Fortunately, there are alternative approaches to conduct negotiations, perform due diligence, and carry out other tasks needed to close a transaction amid this new normal. However, a remote working environment and border closures have slowed down deal executions. That is why we could not see mega deals being closed like back in 2019.

What is your over view of Vietnam’s economy as well as global investor appetite in the context of economic slowdowns?

Amid health and economic crises, Vietnam is emerging as Southeast Asia’s economic bright spot in the coronavirus era thanks to the country’s attempt to contain the outbreak.

Vietnam’s real GDP expanded 2.6 per cent in the third quarter, very impressive considering that regional peers have yet to recover. The International Monetary Fund sees the nation rising to fourth in nominal GDP in Southeast Asia this year, surpassing Singapore and Malaysia and gaining on the Philippines.

Recently, the country ranked second out of 20 most-attractive economies in UK-based market research firm Euromonitor’s M&A Investment Index. The report shows that Vietnam’s score is only behind the United States, citing that the turmoil caused by the COVID-19 outbreak severely impacted M&A markets. However, Vietnam is forecast to grow thanks to investments from developed economies this year due to tensions between the US and China.

The demand for local suppliers is envisaged to continue considerably as more foreign corporations look to ramp up investment here and plan to shift their manufacturing operations to Vietnam. The country now boasts numerous charms for foreign investors, being the only country in the region to produce positive growth this year. Furthermore, a series of new-generation free trade agreements also makes Vietnam more attractive.

Cards in Vietnam’s favour for M&A gains

Next year, the amended laws on Enterprises, Investment, and Securities are coming into effect. How would these changes assist the M&A boom?

I hold a positive outlook on the M&A landscape because the policy framework will be radically improved. For example, in the upcoming amended Law on Enterprises, the timeframe of advanced notification for business suspensions and resumption is shortened from 15 to three working days prior to each event.

If capital contribution comes in the form of assets, the time required for transportation, import, and completing of legal procedures to transfer the ownership of such assets to the company shall be not counted as a part of the 90-day time limit.

Furthermore, minority shareholders who own 5 per cent or more (instead of 10 per cent under the current law) of ordinary shares or a smaller ratio (in accordance with the company’s charter) now have the right to access business activity information to request convening a general shareholders meeting.

Our team has thoroughly prepared for these changes to assist both local and international companies alike to gain the upper hand amid new legal implementations.

What will be the new growth drivers for the M&A market in the future?

Some major sectors such as real estate, retail, manufacturing, and elements in supply chains are always appealing, but they have been hit hard by the pandemic. However, deep-pocketed suitors should move quickly to exploit appealing M&A opportunities and take advantage of lower valuations. From our observation, enthusiastic institutional investors, especially from South Korea, Japan, Singapore, and Thailand, still show their eagerness and confidence in Vietnam’s stable macroeconomy, geopolitical state, and a similar culture to their home countries.

These nations are also maintaining a positive economic outlook and could get the pandemic under control. Thus, foreign funds from those four countries will continue to make a buzz in the domestic M&A market.

On the other hand, we have witnessed several Vietnamese enterprises going abroad to buy businesses, making further inroads for exports instead of cooperating with partners as they did in the past.

Also, Vietnamese regulators are ramping up new strategies to attract more cash into high-tech and green projects. The government has also set up a working group dedicated to promoting investment inflows and calling for multinational corporations to grasp opportunities in Vietnam.

Do you have any advice for buyers and sellers to avoid conflicts in their dealmaking and post-M&A process?

Besides critical factors such as legal issues, tax regulations, and incentives, a large problem often overlooked is cultural integration.

The majority of M&A deals’ failures could be rooted in this, bringing about lost productivity and lost talent, among others. When pursuing a deal, investors should keep an eye on the people, as there are significant effects caused by cultural differences on post-merges business operation.

With our extensive global expertise, our team commits to support and empower companies in not only financial or legal due diligence, but we also do appropriate analysis and assist clients to gain the best out of the most important aspects of any M&A deal.