Evaluating the prospects of M&A upswings next year

November 28, 2022 | 08:00
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Recent global geopolitical happenings and macroeconomic factors have caused the domestic M&A market to experience a downturn. Le Khanh Lam, chairman of RSM Vietnam, talked to VIR’s Linh Le about current market trends and projections for the near future.

In the context of the recent volatile global economy, how would merger and acquisition (M&A) trends in Vietnam be impacted?

Evaluating the prospects of M&A upswings next year
Le Khanh Lam, chairman of RSM Vietnam

The total M&A transaction value in Vietnam in the first 10 months of this year was significantly lower than that of 2021, by over 30 per cent. While the market prospered in the first quarter, the decline happened in subsequent quarters. So it’s obvious that the global impact has spread to Vietnam, with a small time lag.

Along with recent incidents in the domestic market, global factors include the highest inflation recorded in the last 40 years in developed nations, geopolitical conflicts, and monetary issues. Particularly, high interest rates are causing investors to be increasingly cautious with their decisions.

How do you assess the current sentiment from buyers and sellers?

In this difficult period of capital shortage, it is apparent that the sellers want to find good partners who can support them both in terms of capital and strategy. For the buyers, as capital flows are stagnant and global businesses are volatile, many of their activities are disrupted. This caused them to be more watchful in their disbursement activities.

As buyers have more options, it’s their natural tendency to be extra selective, as they may also be facing financial losses in other activities elsewhere.

A silver lining is that in the past few years of the pandemic, we saw an increase in Vietnamese buyers. In addition, Vietnamese sellers facing challenging times generally want to quickly find an investor and may be willing to negotiate terms they would not accept previously. M&A activities in this period are generally smoother and more resonating values are created.

Evaluating the prospects of M&A upswings next year

Can we expect a more favourable environment in the near future?

As for how long this difficult period could last, there are a number of different views. Personally, I think in the near future, certain difficulties would remain, as investors would still be more careful in all investment decisions. Procedures involving legal, financial, accounting and tax arrangements, and due diligence would be looked at more closely and carried out more prudently.

However, Vietnam still has certain advantages as an emerging market. The country is one of the tops in attracting the most investment from abroad and in the top three countries that investors care about in terms of M&A. With a stable annual growth rate and the government’s effective macro-economical control, we can certainly expect the collective effort from all parties would bring back a vibrant market in the coming time.

Which sectors are seeing the most vibrant M&A activities currently and in the near future?

In recent years, sectors such as consumer goods, real estate, agriculture, and basic manufacturing have been those that generate interest from both domestic and foreign investors.

I think this would continue. Among the above necessity-based sectors, if there’s one that would see a slowdown, it would be real estate, as the solution for the current corporate bond issues requires a comprehensive resolution from the government.

In terms of future projection, I think sectors related to telecommunications, entertainment, media and education would see increasing interest. Another sector is energy, including traditional energy sources such as oil and gas and clean energy including wind and solar.

In addition, infrastructure-related sectors can also benefit. As the Ministry of Planning and Investment plans to disburse a considerable amount in infrastructure-related projects next year, it would require more investors to participate to ensure sufficient coverage.

What advice would you give to Vietnamese businesses to attract better-quality capital sources?

One essential step is to have good internal preparations and be able to showcase the quality of their finance and people management, production capacity and sales ability. This preparation would then need to receive an evaluation from a consulting party, before being documented and systematised so that the buyers can easily review, evaluate and assess.

The more thorough you are in covering the basic areas of your business activities, the more likely and easier it will be to meet suitable sellers.

We have talked a lot about foreign exchange management, financial reporting, ensuring transparency in providing information, meeting customers’ information needs, and reducing risks. The ultimate goal is to access cheap capital. However, in the present situation, it is advisable to rush through the process. Businesses need to be patient and cautious and work with a good consultant.

RSM Vietnam was honoured as one of the most outstanding M&A advisory firms at the Vietnam M&A Forum 2022 last week. This award is a testament to the company’s constant efforts in bringing effective solutions to customers in various industries, through services including finance, business, and tax and deal advisory.
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By Linh Le

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