|Excitement sustained in M&A possibilities |
The value peaked in 2017 at $10.2 billion, half of which was attributed to the $5 billion deal that saw Thai Bev acquiring SABECO. The merger and acquisition (M&A) value normalised to $7.6 billion in 2018 and $7.2 billion in 2019, which placed Vietnam in the top three among ASEAN markets, behind Singapore and Thailand. M&A activities were inevitably disrupted in 2020 by the pandemic, with the total value dropping 50 per cent on-year, to about $3.5 billion.
During 2016-2019, M&A activities were concentrated in the consumer retail, real estate, and banking sectors. In 2020 and the first half of 2021, real estate and banking/consumer finance led the M&A wave.
Foreign investors played the leading role in M&A in Vietnam, accounting for 90 per cent of the total value per annum in the years prior to 2019 and around 65 per cent during 2019-20, led by investors from Singapore, Hong Kong, Thailand, South Korea, and Japan.
We observed that Singapore and Hong Kong investors had stronger preference in real estate, Thai investors in consumer retailing and consumer finance, South Koreans in food and beverage (F&B), retailing, and banking, and Japanese investors in banking/consumer finance.
Local investors have become more active in M&A since 2019, accounting for one third of total M&A value during 2019-2020, particularly in F&B and retailing as these companies attempt to dominate the domestic consumer market.
Notable acquirer names include Vingroup, Kido, Masan, Truong Hai Auto Corporation (THACO), and The PAN Group, and their deal sizes typically range between $20-100 million. Three outstanding M&A deals with big sizes of note were THACO acquiring 35 per cent of Hoang Anh-Gia Lai Group in 2019 for $305 million; An Quy Hung acquiring 57.7 per cent of Vinaconex for $320 million; and Masan Group acquiring 86 per cent of VinCommerce from Vingroup in late 2019 for around $1 billion.
We expect M&As will recover strongly after the pandemic is controlled, propelled by secular drivers.
Most stakeholders considering M&A opportunities agree that activity will recover strongly in Vietnam, mirroring the country’s economic growth and expanding consumerism driven by attractive demographics and moving up in the global value chain. A survey by the Institute for Corporate Investment, Mergers and Acquisitions estimated that the M&A value could recover to the $7 billion benchmark by 2022.
According to the survey, sectors expected to see the most active M&As in coming years include consumer-goods manufacturing, industrials and energy, property, retailing, ICT, and logistics.
In our view, there are four factors propelling M&A activities in Vietnam over the next three years. First and foremost, a large and growing consumption market of nearly 100 million people would represent enormous growth potential in key sectors like retailing, F&B, financial services, property, logistics, and healthcare.
Supporting factors are a stable socio-political landscape; a large domestic market with rising middle-income consumers; and expanding urbanisation. Furthermore, Vietnam is moving up in the global supply chain thanks to active participation in free trade agreements, which would underpin the country’s forecast robust economic growth over the next 10-year cycle.
These factors make Vietnam a hotbed for M&A in the consumer, financial service, and property sectors, with particular interest from Thai, Singaporean, South Korean, and Japanese investors. It also justifies the premium valuations that foreign investors are paying to acquire local businesses.
Secondly, we believe there is a stronger demand for capital and expertise from local businesses for the next development phase. Vietnamese companies have gone through a foundation-building phase (2000-2010) and restructuring phase (2011-2018). Currently, they have solidified business platforms and forged clear development strategies for the next growth cycle.
The demand for capital and expertise, especially in building network platforms and digitalisation, is pronounced. This opens up opportunities in sectors like retailing, banking and fintech, industrials like electric vehicles, and logistics.
Thirdly, environmental, social, and corporate governance (ESG) criteria are exerting affluence into the M&A market. Since 2015, Vietnam has prepared a national scheme to achieve the Sustainable Development Goals by 2030. Renewable energy is one of the key areas being strongly promoted with a target of having 21 per cent of total power capacity coming from renewables by 2030. By the first half of this year, renewable energy, including solar and wind, accounted for 11.4 per cent of total power generated here.
Vietnam leads the ASEAN region in renewable deployment, with significant participation of private companies in the solar energy segment. Total investment in renewables in Vietnam reached $7.4 billion by 2020, ranking eighth globally. We observe some listed companies, such as REE and Ha Do Group, are also diverting from traditional businesses to renewables. The demand for capital to expand portfolios from Vietnamese companies and rising ESG investment flows from the US, Japan, and Thailand will create notable M&A deals in the future in this area.
Last but not least, the accelerated equitisation of state-owned enterprises (SOEs) will pave the way for buoyant M&A activities. Vietnam used to rely on SOEs as the key pillar of its economic growth, which is a legacy of the command-based economy. Since 1990, along with the transition to a market-based economy, the government has set out a plan for equitising SOEs, which was initially to be completed by 2020.
The equitisation process has slowed down significantly since 2018 due to several factors, including a change in government causing delays in decision-making, obstacles in the legal framework pertaining to foreign ownership limits and land-use rights, and of course the pandemic.
There are now 93 SOEs in the pipeline for potential initial public offerings, and 209 SOEs in divestment pipelines, including big names in banking, telecommunications, retail, hospitality and services, and the logistics sector.
We expect that the pandemic will retreat and the new government set up this year will focus on resolving legal obstacles to accelerate SOE equitisation in its endeavour to enhance the overall efficiency of the economy.