M&A opportunities in a volatile market

November 23, 2022 | 16:26
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The consumer, industrial, real estate, energy, and utilities sectors were the most sought-after targets in 2022-2023 when split by industry.

The consumer, industrial, real estate, energy, and utilities sectors were the most sought-after M&A targets in 2022-2023 when split by industry.

According to KPMG Vietnam, from 2016 to 2021, the total transaction value and number of transactions in the industry grew at a compound annual rate of 10.7 and 17.1 per cent, respectively.

In the first 10 months of 2022, the number of M&A transactions in the energy and public utilities industry doubled, and the total transaction value increased fivefold compared to 2021, reaching $676 million and surpassing pre-pandemic levels ($518 million) of 2020.

Warrick Cleine, chairman & CEO of KPMG Vietnam and Cambodia, said that the new tariff framework for PDP8 transition and completion projects was expected to encourage more M&A deals in the industry.

M&A opportunities in a volatile market

According to the International Energy Agency (IEA), by 2025, renewable energy will be predicted to overtake fossil fuels as the world's main means of electricity generation.

The M&A market spiked sharply as investors shifted their focus to the clean energy sector. As a result, the energy and public utilities sector will be more invested in its operations than ever before. Up to now, M&A activities have been mainly carried out by foreign investors, especially from Thailand, Singapore, Japan, Korea, and Taiwan.

However, the market is witnessing a shift towards domestic companies as they have become more active in M&A activities since 2020. In 2022 domestic investors have started to keep pace and dominate the M&A market when they need a capital-raising channel to recover quickly from the pandemic and reform their business model, which is reflected in the expansion of the proportion of the deal value compared to foreign investors. In 2022, these foreign investors contributed more than 40 per cent of the deal's total value.

Investors are becoming increasingly interested in energy, utilities, and the previously highlighted sectors.

From 2016 to 2021, the M&A landscape in Vietnam for energy and utilities improved steadily, with a compound annual growth rate of 10.7 per cent for deal transaction value and 17.1 per cent for transaction volume.

However, the first ten months of 2022 have seen a significant increase in this sector as the volume of energy and utilities transactions doubled, and the aggregate transaction value has increased fivefold to $676 million as compared to the entire year of 2021, surpassing even the pre-pandemic level of $518 million in 2020.

According to the IEA, by 2025, renewable energy is anticipated to overtake fossil fuels as the primary means of generating electricity worldwide.

The M&A market experienced a surge due to investors shifting their focus to the clean energy sectors. As a result, the energy and utilities sector will see more investment in its operations than ever before.

With an uncertain outlook for the global economy, Vietnam may face a slowdown in 2023 after a record GDP growth of 8.8 per cent in the first nine months of 2022. Besides, domestic fraud crackdowns, interest rate hikes and a weakened currency have also added further challenges in the coming year. Such conditions caused investors to be more cautious when considering an M&A decision.

“On the back that inflation and interest rate will eventually come down and thus restoring investor and consumer confidence, we expect to see M&A activities in Vietnam recover starting from the second half of next year. When this trend resumes, digital transformation, a shift toward clean energy, huge consumer market and rising ESG awareness continue to be key themes for future M&A in Vietnam,” said Cleine.

Factors to be taken into consideration for M&A opportunities in 2023 would be potential megadeals in the financial services sector which may change the landscape of the M&A market, divestments of government stakes in major state-owned enterprises, and continued megatrends such as 'going green' and the emerging middle class bringing more investments into the energy sector, Cleine added.

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