Equity investors begin to smile

Grant Thornton’s  private equity sector bi-annual survey  last week showed that private equity investment would continue to be a good option for successful entrepreneurs to access capital to grow Vietnamese businesses.

The survey,  carried out in the second and fourth quarters annually, showed that 53 per cent of respondents considered Vietnam to be more attractive than any other destination in the region, and this is especially true for Japanese funds and the ASEAN Business Council.

“While the gloom in the global economy is continuing, Vietnam is considered to be an economy that is still in transition. Effectively restructuring and revitalising the economy with single digit inflation rate, plus interest rate and other reform measures, will generate a platform for sustainable growth in Vietnam,” said Ken Atkinson, managing partner of Grant Thornton Vietnam.

Education, healthcare and pharmaceuticals and agriculture are equally attractive industries for private equity investment.

Interestingly, real estate fell to the bottom of the list. Six months earlier, half of the survey respondents rated it the most attractive sector and half rated it the least attractive sector.

The allocation of investment funds to Vietnam increased slightly compared to the 2011 fourth quarter survey and , coupled with the many ‘no change’ responses, indicates a bit of a ‘wait and see’ attitude of investors towards the effectiveness of government policies to deal with inflation, high interest rates and shrinking value of the local currency.

“In the current economic environment, many private equity investors are adopting a ‘wait and see’ attitude. Expectations are for the medium range of exit multiples to remain stable over the next 12 months,” said Matthew Facey, tax director of Grant Thornton Vietnam.

Many local small and mid-sized enterprises have been struggling with the tough economic environment for some time and many will not be able to survive without an input in the form of loan capital or a subsidy.

As a result, there is expected to be fewer asset investment opportunities in Vietnam, as cited by 58 per cent of the respondents, similar to the 61 per cent in the fourth quarter of 2011.  

Secondary buyout deals at 46 per cent overtook private businesses as the biggest source of deals, increasing from 31 per cent in the previous survey.

“This probably reflects the fact that several funds are approaching their exit phase,” stated the survey.

Also, according to the survey, the most common investment period for private equity investors in Vietnam is 3-5 years in line with the expectation that enhancing value through hands-on involvement in investee companies is likely to need up to five years to achieve.  

Trade sales, the most common exit strategy for private equity, continued to dominate as the most attractive exit strategy for private equity investments in Vietnam.

Because IPO is not currently a viable option, secondary sales is the next favoured exit strategy.

The expected multiple of five-fold to ten-fold EBITDA for investment in Vietnam dominated other exit multiple ranges.

The majority of private equity investors stated that exit multiples will stay the same over the next 12 months.

The continued high level of respondents (53 per cent) who believe that the level of exits will increase reflects the investment cycles for maturing funds.  

Responding to a newly introduced question about concern about “trapped cash/assets” in Vietnam, 55 per cent of respondents indicated concern and 33 per cent were very concerned.