Heartier European appetite for M&A dealmaking via new free trade agreement

What changes – legal or ­otherwise – have you seen in the mergers and acquisitions (M&A) market in Vietnam in recent years, and how would you compare Vietnam to ­regional markets?

Stefano Pellegrino and Kent Wong

The M&A market in Vietnam is strong and vibrant. Transactions are widely considered one of the most effective means for market entry and business expansion in the country. The number and value of completed M&A transactions in Vietnam have grown steadily during recent years, and are expected to grow further during 2019, especially if the EU-Vietnam Free Trade Agreement (EVFTA) is ratified and enters into force as anticipated.

M&A deals in Vietnam were reported to hit $9.9 billion in 2018, rocketing by 160 per cent compared to 2017. The three sectors in which M&A activities were the strongest in 2017 and 2018 were consumer goods manufacturing, real estate, and banking and finance.

Investors from Thailand, Singapore, Japan, and South Korea played a crucial role in the M&A scene during 2017 and 2018, achieving impressive transaction completion volumes.

Vietnam’s Law on Investment 2014 (LoI) and Law on Enterprises 2014 (LoE) represent significant milestones in the development of the legal framework for M&A activities in Vietnam. The implementing legislation issued according to these new laws has also contributed to the simplification and streamlining of relevant administrative and regulatory procedures in Vietnam.

At the same time, several key issues under the new LoI and LoE and their implementing legislation remain unresolved and need further clarification by relevant state authorities. In order to address some of these outstanding issues, since December 2017, the Ministry of Planning and Investment (MPI) has published four drafts of a proposed new law on the amendment of some articles of the LoI and LoE, which is expected to be submitted to the National ­Assembly for discussion in October and adoption in May 2020.

Have you seen any recent moves in M&A investment among EuroCham’s members in Vietnam? What are the ­sectors of interest?

Members of EuroCham in Vietnam are traditionally considered financially capable, with deep technical know-how and coverage of a diverse range of sectors. Until now, most M&A transactions involving European investors were in areas such as oil and gas, consumer goods, food and beverage (F&B), and retail.

This year sees an increase in European M&A investment in pharmaceuticals. This is mainly due to the issuance of Decree No.60/2015/ND-CP dated 2015 which allows foreign investors to own 100 per cent of shares in a local public company. Vietnam is one of the countries which imports pharmaceuticals from Europe.

However, this does not provide a complete picture of European investors in the M&A market of Vietnam. Thanks to the upcoming EU free trade agreement, as well as other bilateral investment treaties and FTAs signed previously with European countries, a number of economic co-operation agreements between foreign investors and Vietnamese enterprises are anticipated to be signed. In particular, various new sectors are expected to benefit such as renewable energy, semiconductor tech, and water and waste treatment, which are some of Europe’s highly-reputed technologies.

From a regulatory perspective, there have been some positive trends which may further build investors’ confidence in M&A deals, especially in the retail, fast moving consumer goods, and F&B sectors. The government has increasingly demonstrated a willingness to engage in state divestment, promulgating regulations to ease some of the requirements for foreign-invested traders; and revised the draft amended Law on Securities intending to ease restrictions on foreign ownership, as well as improving issuance conditions and reducing risks for investors when contributing capital to enterprises.

However, to remain an attractive destination for European investors, the government will need to continue its support to embrace the Fourth Industrial Revolution and to prioritise the availability of digital tools and services for businesses, as well as to reduce administrative burdens for European investors and entrepreneurs.

Amid the upcoming enforcement of the EVFTA, what are the determining M&A trends among EuroCham’s members in the Vietnamese market in 2019 and the coming years?

M&A deals are expected to increase further during 2019, as many foreign investors try to position themselves in ­the country to benefit fully from the FTAs, including the EVFTA, which are expected to enter into force during the next few years.

Looking forward, inbound M&A in the domestic consumer ­finance sector is also likely to ­increase in both size and ­number, since M&A is the quickest way to penetrate the country’s growing consumer finance market.

EuroCham members welcome the opportunity to work alongside regulators to facilitate growth and efficiency in the M&A market.