Experts line up to extol virtues of M&A

The “Time to Strike” M&A Forum took place last week. Photo: Le Toan

Speaking at last week’s M&A Forum, titled “Time to Strike” held by VIR, Deputy Minister of Planning and Investment (MPI) Tran Quoc Phuong, said that a handful of free trade agreements are helping to stimulate appetite for mergers and acquisitions (M&A) in Vietnam. “The MPI has continuously encouraged savvy acquirers to focus on digitally-led industries and cutting-edge technologies. We believe the explosion of M&A has yet to come, and 2022 onwards could be a prime time for both domestic and cross-border deals,” Phuong said.

In the first 10 months of the year, there were at least 500 M&A deals closed, generating $8.8 billion in total transaction value and reflecting a 17.9 per cent increase over the whole of 2020, and a 13 per cent increase over 2019.

The average deal size for a transaction with disclosed value has gone up from $28.1 million in 2019 to $42.8 million. More deals over $100 million were concluded over the review period, with 22 deals recorded in just the first 10 months of 2021 compared to 19 in 2019.

Consumer staples, finance, and real estate have been the most popular targets in recent years, accounting for up to 60 per cent of total value. They have reaped significant benefits from the brisk demand for housing, financial services, and convenience items that has resulted from a huge population with a growing middle class and a quick rate of urbanisation.

The year’s biggest M&A deals have involved companies primarily operating in these sectors, including Sumitomo Mitsui Financial Group’s $1.3 billion investment in VPBank’s FE Credit, SK South East Asia’s $410 million commitment in VinCommerce, and Baring and Alibaba’s $400 million investment in The CrownX, all in the first half of the year.

In recent times, Vietnam has seen a dealmaking renaissance as local management increased their expansion attempts, with M&A being one of the primary approaches.

“Vingroup, Masan Group, Hoa Phat, Vinamilk, and Nova Group are the top five most acquisitive purchasers in terms of both transaction value and volume in the previous two years,” said Warrick Cleine, chairman and CEO of KPMG in Vietnam and Cambodia. “The country clearly boasts great confidence as an alluring investment destination.”

These domestic behemoths, in particular, have disrupted the market with many blockbuster agreements as both buyers and sellers, resulting in a 5-fold rise in deal value from $248 million in 2019 to $1.21 billion in 2020, accounting for 53 per cent of total local M&A value.

Despite the lingering pandemic, the pack demonstrated a tenacious effort in the quest for attractive investments, closing 11 agreements totalling $1.13 billion during the first 10 months of 2021, representing 70 per cent of all domestic M&A transactions.

The enthusiasm in local M&A activity will stay intact for these firms since they not only have substantial financial reserves to hunt for excellent targets they also have a strong desire to pursue continual market expansion and profit margin enhancement.

Various speakers at the M&A Forum highlighted that forthcoming 5G technology would lay a concrete foundation for advanced technology in fintech, P2P lending, and in renewable energy, among others, and tie-up deals would benefit from these trends.

“Given Vietnam’s strong commitments towards reaching net-zero emissions and the increasing importance of environmental, social, and governance criteria, it can be confidently said that more landmark deals will be executed in environmentally-friendly sectors,” noted Le Khanh Lam, chairman of RSM Vietnam. “A strategic view of climate risks also unlocks vast potential for smart investment approaches.”

On the same boat, Thuong Pham, deputy general director and CFO of BCG Energy under Bamboo Capital Group, said that BCG has been monitoring the market since 2018 in order to identify investment opportunities – not only in renewable energy but also in the financial sector through M&A.

“The first prerequisite for domestic firms to be able to thrive in such agreements is transparency, mutual trust, and a talent pool to not only successfully complete deals but also encourage vigorous growth post-M&A,” Pham elaborated.

Bamboo Capital Group not only has operations in manufacturing, infrastructure, real estate, and renewable energy, but it has also recently entered the financial sector via an agreement with insurance firm AAA Group, with an ownership ratio of over 80 per cent.

Tran Quoc Phuong - Deputy Minister of Planning and Investment In the past decade, mergers and acquisitions (M&A) have become an efficient capital raising channel, helping to propel the growth reform process, economic restructuring, and state-owned enterprises equitisation. Vietnam’s M&A market has witnessed booming development attested by thousands of successful deals with total transaction value surpassing $50 billion. In 2021, foreign investment flow into Vietnam, including that through M&A deals, has still managed growth. Along with this, by end of November, total newly registered and revised committed investment value, including that through capital contributions and stake purchases reached $26.46 billion, up 0.1 per cent compared to 2020, in which investment through capital contributions and stake purchases approximated $4.4 billion. Estimates by the Institute for Corporate Investment, Mergers, and Acquisitions show that total M&A deal value in Vietnam may hit $5.5 billion in 2021, committed into about 400 deals, reflecting a sharp growth compared to $3.5 billion in total value with 250 deals in 2020. Soaring values and deals in this country show that the Vietnamese M&A market has been very attractive, and both domestic and foreign investors pinned their hope on the government’s strenuous efforts to improve investment and business environment as well as measures on pandemic containment. Next year is of great significance for a quick economic rebound, laying the foundation for accomplishing the targets of the 5-year socioeconomic development plan. Challenges are abounding, paired with growing uncertainties. In the domestic market, the experience and capacity in confronting the pandemic are being heightened, yet the state resources and those of businesses and people are increasingly depleted. The risk of slowing economic rebound and abated growth is still imminent unless the pandemic was contained, paving the way for the total opening of the economy. This context demands Vietnam holds the initiative in crafting strategic direction and drastic measures to troubleshoot difficulties and drive economic development, bringing Vietnam’s economy into a stable rebound orbit. The Ministry of Planning and Investment (MPI) is studying and consulting with the government on penning the programme on socioeconomic recovery and development for 2022-2023 which is comprehensive and sizable, to be flexibly implemented and attuned with fiscal and monetary policies, and closely attached to important plans like for public investment and economic restructuring. The programme, after being implemented right from early 2022, would lay the groundwork underpinning speedy recovery and sustainable development of the economy for the successful implementation of the targets set in the 13th National Party Congress resolution. The National Assembly has recently greenlit the economic restructuring plan for 2021-2025, which features significant institutional improvements to drive forward economic space structuring, sectoral restructuring, public investment, and state-owned enterprises restructuring, among others. The MPI has completed the strategy on foreign investment attraction in the new period, pursuing Resolution No.50/NQ-TW on improving the quality and efficiency of foreign investment cooperation through 2030. The strategy seeks to prioritise high-tech projects with modern management expertise, technology transfer, and human resource training, and would become the lodestar helping Vietnam to further attract and optimise the efficiency of foreign capital flows into the country. The business community has made great endeavours in finding new growth models or adapting to the fast-changing environment, empowered by low-cost capital sources and policies. Many firms are eagerly awaiting fresh opportunities, leading to an anticipated boom in M&A deals in the upcoming time. I, therefore, hold a firm trust in the market in successive years. *Excerpt from remarks made at the Vietnam M&A Forum 2021