M&A ecosystem maintaining shine

The Sun Frontier venture in Danang has been invested in by Danh Khoi Group, photo Le Toan

The outbreak has plunged many economies into deep recession and disruption, seriously hampering investors’ appetite, bringing about a decline of 25 per cent in mergers and acquisitions (M&A) valuation worldwide in the first half of this year.

The Vietnam M&A Forum Research Group (MAF Research) predicted that the domestic market will rebound following a V-shaped trajectory during 2021-2022, hitting $4.5-5 billion in 2021 and $7 billion in 2022.

The Regional Comprehensive Economic Partnership, signed on November 15, is envisaged to provide additional impetus for the local and global investors to further enhance their ties and increase their foothold in overseas markets. Furthermore, dealmaking activities should regain traction when three amended laws come into effect from February 1, 2021.

According to the Law on Securities and the draft decree on implementing it, foreigners will not be limited with regards to the ownership ratio in public-listed firms. The Law on Investment, meanwhile, is set to benefit international financiers, since they will be allowed to approach the market in a similar scheme that is applied for domestic ones, except for some sectors where such approaches are limited.

Pham Mai Huong, director of Deal Advisory at KPMG Vietnam, told VIR that M&A deals keep their glitter thanks to their ability to add value for the buying side’s ecosystem, illustrated in the cases like Masan and VinCommerce, and Thailand’s largest retailer Central Group and Nguyen Kim. “In general, investors tend to be more conservative amidst the worldwide economic uncertainty. Yet, deep-pocketed investors will seize the opportunity with both hands with an ‘acquire-on-the-cheap’ strategy,” Huong said.

On the other hand, the Ministry of Finance stated that challenges due to the COVID-19 pandemic in addition to an already volatile market have thrown a monkey wrench in the works for state divestment.

According to consultancy Boston Consulting Group (BCG), the sheer economic disruption has compounded debt burdens for a wide range of businesses, and the natural response has been to divest non-core operations. The number of distressed deals is likely to spike as a result.

BCG believes record levels of dry powder currently sitting with global private equity and venture capitalists show that investors have the money and are just waiting to spend it.

The proportion of M&A value from the domestic sector tends to increase thanks to the dominance of privately-run corporations, such as Masan, Vingroup, THACO, and The PAN Group. During the last two years, M&A with Vietnamese companies being the acquirers accounted for one third of the total value compared to around 12 per cent in 2018.

A slew of dealmaking plans are allegedly under negotiation, such as Norway-headquartered SN Power AS buying Vietnam’s Dam Nai Wind Power from Singapore’s Armstrong Asset Management, and STADA Service Holdings B.V. from Germany wholly acquiring local pharma firm Pymepharco.

Meanwhile, the dynamism of the Vietnamese M&A sector continues to attract big investments led by mega companies mainly from Japan, South Korea, Thailand, and Singapore.

In the first nine months of 2020, 19 Japanese tie-ups with Vietnamese businesses have dominated the headlines, highlighting keen Japanese interest in real estate, construction, finance-banking, and pharmaceutical landscapes. For example, Mitsubishi Corporation and Nomura Real Estate acquired 80 per cent in phase 2 of Vinhomes’ Grand Park project.

South Korean investors are also placing their focus on an array of domestic lucrative fields. SK Investment III, a subsidiary of South Korea’s third-largest conglomerate SK Group, has become a large shareholder of Imexpharm, adding to its considerable portfolio of shares in Vingroup, Masan, and PV Oil. Lotte Chemical has also acquired Vina Polytech to realise its vision of becoming the seventh-largest chemical company in the world.

In another case, Thailand’s Stark Corporation has purchased 100 per cent equity in Thinh Phat Cables JSC and Dong Viet Non-Ferrous & Plastic JSC for $240 million.

MAF Research cited that the deal between Danh Khoi Group acquiring a subsidiary of Japan’s Sun Frontier Fudousan is the single-highest recent deal in the property sector by value. After reaching agreement at $920 million, Danh Khoi is now investor of the Sun Frontier project in the central city of Danang.