Cold shoulder from business owners over M&A delay plan

Cold shoulder from business owners over M&A delay plan, illustration photo

Thailand-based SCG is no stranger to mergers and acquisitions (M&A) in Vietnam as it has carried out dozens of such deals over the past decade, such as the deals for brick company Prime Group, Tin Thanh Packaging, Binh Minh Plastics, and Long Son Petrochemical Complex. However, it may face a potential hurdle in its ongoing plan to purchase Bien Hoa Packaging. SCG hopes that this acquisition would bolster its Southeast Asian business. The Vietnamese company, it believes, has a competitive edge in packaging for the food and beverage industry in Vietnam. Bien Hoa has capacity to produce 90,000 metric tonnes of cardboard boxes and 10,000 tonnes of offset-printed paper boxes a year. In its fiscal year 2019, its sale revenue hit VND1.7 trillion ($73.9 million) and net profit of VND141.2 billion ($6.18 million).

But last week, the Vietnam Chamber of Commerce and Industry (VCCI) proposed to delay M&A deals for the duration of the current coronavirus pandemic in order to avoid leaving local businesses vulnerable to hostile takeover bids from foreign investors. The move follows recent movements from the European Union and other countries to take action to protect domestic companies by increasing scrutiny of overseas investments during the global health crisis. No decision has been made on the proposal to the Vietnamese government, although the VCCI declared the action to be a “necessary” one.

However, Robert Tran, CEO of global business advisory firm RBNC said that M&A activities should not be suspended on a full basis and instead the Vietnamese government should only tighten attention in key fields such as banking, oil and gas, aviation, and energy.

Seck Yee Chung, partner of Baker McKenzie Vietnam, meanwhile told VIR that while there are legitimate reasons for governments to be concerned about and protect certain industries or assets in these unique circumstances, such restrictions must not be imposed with a broad brush as it may likewise block transactions that are equally legitimate in terms of commercial opportunities and outcomes, and those that do not run counter to national security and interests. “Local founders might feel that this is the time to accelerate bringing in strong and strategic foreign partners, and the commercial terms are up to the parties to negotiate and decide,” Chung said. “Some business owners might also find that they have to restructure their various holdings and assets and seek an exit to another investor, so as to focus on other assets that deserve more attention and have a better chance of being turned around.”

With Vietnam so far successfully containing the coronavirus, demonstrating a safe and friendly investment environment, the country is on the radar of many looking into Asian capital investments. As a result, M&A could accelerate in Vietnam, even as the crisis damages a huge number of enterprises, forcing them to restructure or end operations entirely.

Chung warned Vietnam should think strongly about any M&A delay as it has for many years diligently and carefully cultivated a message that it is open for business. It also has visions of smart and innovative cities, and digital transformation driving its industries. “While Vietnam clearly cannot ignore national security concerns, likewise, it shouldn’t ignore the commercial drivers and opportunities foreign and local firms are exploring,” he said.

Nguyen Mai, chairman of the Vietnam Association of Foreign Invested Enterprises, also said this warning is “unnecessary”, and he explained that M&As in the first four months remain modest, with the average value of capital contribution case only $0.77 million each, equal to 54 per cent of the corresponding period of 2019.

Figures from the General Statistics Office showed that M&A during January-April 20 remained modest with 3,210 capital contributions and shares purchases by foreign investors, valued at nearly $2.5 billion, down 65.3 per cent against the same period last year.