How 2024 is shaping up for M&As

ASL Law’s managing partner Pham Duy Khuong (left) and senior partner Nguyen Thi Thuy Chung.

With the global economy’s uncertainty and escalating political tensions alongside the unfavourable closure of the M&A market in 2022, activities in 2023 have not been as dynamic and vigorous as anticipated. Data indicates that the volume of M&A transactions in 2023 has even fallen below the levels of 2022.

Global M&A transaction volume in the first half of 2023 - encompassing various types of transactions such as minority stakes and venture capital rounds - continued to decrease compared to last year after the record-breaking activity of 2021. The total global M&A transaction volume in 2023 up to Q3 ($1.95 trillion) was nearly $1 trillion lower than the same period in 2022 ($2.91 trillion) and marked the third-lowest total value since 2013 ($1.77 trillion).

Consequently, the recorded number of transactions in various regions reflected declining M&A transaction volumes as a global trend, with major markets witnessing similar substantial declines: North America decreased by 37 per cent, Europe by 55 per cent, and Southeast Asia by 40 per cent.

Overall, this decline was primarily due to a reduction in the number of large transactions, significantly lower than both the pandemic level and the regional averages of previous years.

Among the total deals in the first seven months, as per statistics from EY-Parthenon, the real estate sector held the highest proportion, led by construction and followed by financial services and consumer services. Notably, the number of real estate and construction deals was nearly double that of the second-ranked sector.

With a total transaction value of $1.4 billion in the first seven months of 2023, the industrial real estate sector drew the most attention from foreign investors, signalling a recovery in the real estate market. This attention was due to advantages in favourable pricing and stable values; as well as policies showing positive signals in efforts to improve the legal framework related directly to M&A projects.

Additionally, the recovery in industrial production has been one of the reasons for the growth in M&A transactions in the industrial real estate sector.

Meanwhile, Vietnam is undergoing a digital transformation, with the government building a national database and digitalising population data. In the private sector, banks are aggressively promoting digital banking services.

Moreover, the high internet usage rate and extensive application of technology in core financial services and banking offer significant advantages. This aids the development of the e-commerce market, positioning Vietnam as a highly promising market in the region. The visual indices regarding the country’s internet and e-commerce below demonstrate its considerable potential in e-commerce within the region, reflecting a highly progressive trend in consumer behaviour within e-commerce.

Impacts of current events

Concerning market access and policy support, a pivotal aspect of the comprehensive strategic partnership between Vietnam and the United States is Vietnam’s proposal for the US to consider recognising its market economy status.

This is anticipated to significantly impact the M&A market. It will strengthen trade and investment cooperation by further opening the market for Vietnam’s key products, suggesting the potential application of the Generalised System of Preferences for tariff preferences. The US also commits not to employ trade defence measures.

Collaboration will also be prioritised in fields such as science and technology, innovation, education, climate change mitigation, and renewable energy. In terms of development and infrastructure support, the US pledges to enhance assistance to Vietnam in manufacturing, developing high-quality physical and digital infrastructure, and achieving equitable energy transition.

The US International Development Finance Corporation will continue providing financial support for relevant ventures, which could aid enterprises in expanding their scale and business capabilities during M&A transactions.

Meanwhile, the Russia-Ukraine conflict has affected trade and investment activities due to sanctions against Russia. Actions like blocking Russia’s financial system SWIFT have impacted Russian projects using the Euro currency in Vietnam, potentially reducing M&A activities Russia might engage in.

The conflict has caused supply chain disruptions, leading to halted orders for many Vietnamese export businesses and disruptions in raw material supplies, resulting in delays in payment methods.

In addition, the rise in prices of certain fuel and production-related raw materials has increased pressure on global inflation. Companies involved in M&A might face delays in project implementation and contract execution due to unstable transportation and logistics caused by higher freight charges.

Meanwhile, the conflict between Israel and Hamas has resulted in a disruption of trade and investment relations, intensifying economic defensive measures. Political conflicts often lead to an increased economic defensiveness due to concerns about reduced overall consumer demand. This affects Vietnam’s exports, potentially decreasing income from foreign sales.

Additionally, the global rise in oil prices affects finance and banking, posing significant challenges for the State Bank of Vietnam due to defensive psychology and leading to the hoarding of valuable assets such as USD and gold.

Furthermore, supply chain disruptions and impacts on energy sources, particularly oil, are notable. This disrupts the movement in supply chains and international investments, impacting investments from European and American countries and facing difficulties in expanding cooperation with Arab nations.

Predictions for 2024

Next year, Vietnam is poised to continue attracting overseas funding due to sustained economic growth, a high-quality workforce, and being a focal point in the transition of investment flows from China. Vietnam has become one of the world’s attractive investment destinations with advantages in a young population, impressive economic growth rates and an increasing number of consumers.

In recent years, Vietnam has attracted investments from various Asian markets such as Japan, South Korea, Singapore, Thailand, and China, while receiving relatively less investment from Europe and North/South America.

In terms of sectors, attention may be directed towards real estate and construction, energy, consumer goods, and industrial manufacturing in the coming year.

Policy-wise, modifications to regulations directly governing M&A transactions in this sector, including the laws on land, real estate business, and housing, are expected in 2024. A clear legal framework is considered crucial, reducing risk appetite and enhancing the attractiveness of M&A deals in this sector.

Despite the overall market downturn due to the pandemic’s impact, signs of recovery are emerging, and lower bank interest rates are contributing to a heating up of the real estate market. Concurrently, with the development and potential of industrial production, industrial real estate is likely to continue garnering significant attention in investment opportunities.

In the energy sector, renewable energy is a potential market amidst global climate change. There is a national action programme to perfect policies and laws to promote responsible business practices in Vietnam towards 2027 period, with one of the tasks to improve the legal framework on the environment by 2025.

The Law on Environmental Protection has also come into effect with new provisions, such as the introduction of a carbon trading floor to be tested in 2025 and officially implemented in 2028.

Over 1,900 Vietnamese enterprises are required to undergo greenhouse gas inventory procedures and report annually. These are new regulations and businesses are currently undergoing training to comply, indicating significant policy-driven potential for market development and investment attraction.

In the consumer goods and industrial manufacturing sector, the vigorous digital transformation of both the public and private sectors in Vietnam, along with the rapid adaptation of the population to these changes, coupled with the high potential for the development of e-commerce, are highly regarded in the region as factors driving the growth of the consumer industry in the foreseeable future.

Industrial manufacturing is expected to benefit from commitments between Vietnam and the US under the comprehensive strategic partnership, commitments related to training support, project funding, as well as Vietnam’s position in the supply chain.

Overall, 2023 witnessed a multitude of challenges for businesses worldwide. Nevertheless, amidst these adversities, the positive indications seen in the M&A market during the third quarter of 2023, driven by shifts in economic, political, and social landscapes, alongside the government’s initiatives to enhance the business environment, inspire confidence in the robust resurgence and expansion of M&A activities in Vietnam in 2024.

M&A arena expects growth next year Due to an unstable global economy, the merger and acquisition market will face many challenges in 2024, but there will still be great opportunities in several sectors, according to experts.