Clear characteristics shaping expectations in M&A

According to KPMG’s Vietnam 2024 Outlook report, the current slowdown in merger and acquisition (M&A) activity is expected to be brief. Could you shed some light on related activities here?

Warrick Cleine, chairman and CEO of KPMG in Vietnam and Cambodia

We all hope 2023 will turn out to be a low watermark for M&A activity in Vietnam, when deal volume and value was way down on prior years. There were few mega deals in 2023, and venture capital deals virtually disappeared, which made it tough for startups.

That situation reflected a global trend, where high USD interest rates made deals more expensive, assets less valuable, and currency valuations rather distorted.

Early signs are that 2024 will still be slow for M&A in Vietnam, where some of the global headwinds still persist, and local conditions are causing business uncertainty.

We have seen business confidence return in some of Vietnam’s peer markets across Southeast Asia. New or refreshed leadership in the Philippines, Thailand, and Indonesia are all working to attract investment, and those markets look like they will pick up faster than in Vietnam.

We need business confidence to return to Vietnam before we see large volumes of M&A activity. An early sign of confidence returning will be when we see the American private equity investors return to the market, and the large corporate investors from Japan and South Korea look to make more new acquisitions. We haven’t really seen that yet, but enquiries are increasing.

It is very pleasing to see some new deal activity in Vietnam this year, including the Home Credit mega deal, and some overseas acquisitions by Vietnamese companies. While it is still early, we might see 2024 deal values and volumes exceed 2023.

What are the key trends and characteristics shaping Vietnam’s M&A market this year?

There are three clear characteristics emerging in Vietnam so far. Firstly, investors doing deals are those who look past current challenges and see the long-term strengths for Vietnam.

Secondly, it is a buyers’ market, which means buyers are in a stronger position than sellers now. Buyers can demand better valuations and deal terms, and sellers either must accept the offer, or miss out on the deal. Given stretched balance sheets, waiting is no longer an option for some companies.

Thirdly, companies with strong balance sheets and financial capacity can buy great assets that might not normally be available. When economic conditions are difficult, strong companies have a greater advantage than they do usually.

We expect these three characteristics to define the M&A market in Vietnam for the remainder of 2024.

Beside foreign investors, some Vietnamese companies are also stepping up their efforts in this area. What are the driving forces behind Vietnamese companies’ M&A activities?

We are seeing more interest from Vietnamese companies in pursuing non-cash M&A deals – this is where companies merge or acquire using shares or other assets.

For example, a company might merge with a competitor to strengthen the overall business, or companies might sell certain business units in return for shares or other assets, which they can more easily sell later.

These can be complicated deals – considering valuation, tax, legal, and governance issues – but the major challenge of financing the deal is removed. Our deal advisory teams are working on some fascinating deals of this nature, which will hopefully make headlines later this year.

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