'M&A opportunities in a volatile market' session at the Vietnam M&A Forum 2022

November 24, 2022 | 22:07

(0) user say

Session 1 of the "M&A opportunities in a volatile market" of the Vietnam M&A Forum 2022, was moderated by Seck Yee Chung, partner at Baker & McKenzie Vietnam. Keynote speakers analysed the fluctuations in major economies such as the United States, Japan, EU and their affect on M&A in developing countries and Vietnam in particular.

'M&A opportunities in a volatile market' session at the Vietnam M&A Forum 2022

Panelists at the Session 1 of the "M&A opportunities in a volatile market" of the Vietnam M&A Forum 2022

The dialogue also revolved around the topic of funding sources for deals in the context that both international and domestic cash flows are experiencing great fluctuations and the result of tightening policies from many central banks.

According to a PwC estimate, private investment funds globally have more than $2 trillion in hand, are looking at opportunities for M&A in Vietnam as well as the industries that will have many exciting M&A activities.

Pham Duy Khuong, managing director, ASL Law

The competition between Vietnam and other countries in the region is increasingly fierce with more and more Indian IT companies looking to Vietnam. Vietnam has a market potential of more than 100 million people, and is attracting a lot of investors.

Vietnam needs to have more regulations on transferring profits and capital of investors abroad through the banking system so that foreign investors can manage their accounts wherever they are. This is a solution to promote competitiveness with other foreign countries in the region.

Potential areas in 2023 still focus on food, agriculture, information technology and finally the real estate industry when the difficulties are over.

During this difficult period, the parties must focus on the cost and time of legal due diligence because the legal due diligence in the current context takes a lot of time.

In addition, additional provisions should be added in case of force majeure to protect buyers. Currently, there are many sellers and the buyer will have different options, the seller must find opportunities to approach the buyer, thereby increasing the opportunity to attract capital.

Lam Thi Ngoc Hao, partner, head of Clients and Markets, KPMG in Vietnam

Many Vietnamese companies prioritise increasing liquidity and increasing cash, so the M&A market is now for buyers, not sellers.

Foreign investment funds are always looking for companies with high profits for M&A.

From a business perspective, according to research by international companies, the cash cycle of Vietnamese businesses is usually two weeks, and ordinary businesses need 20 per cent of working capital.

Investors make an M&A decision often based on financial statements from previous years (5 years or 10 years ago) to refer to targeted companies’ profit. However, it is difficult for investors to have transparency from corporate financial statements because Vietnam is one of the countries that have not applied International Financial Reporting Standards (IFRS).

Although the application of IFRS is encouraged, only a few companies in Vietnam use the IFRS standard. Failure to follow international financial reporting standards makes Vietnamese enterprises less competitive than other countries in M&A.

Currently, investors are interested in M&A in industries, electricity, water supply, food and beverage, healthcare, medical, and startups. These are industries that promote the advantages of a large population and labour market.

However, the obstacle for foreign businesses when coming to invest in Vietnam is the rapidly increasing costs. Therefore, to attract large enterprises to move from China and other markets, Vietnam must increase labour productivity and promote innovation.

Sam Yoshida, CEO, RECOF Vietnam

Vietnam is an attractive destination for Japanese investors because of it is young population, and growing middle class. Also, Vietnam is the country with the fastest GDP growth in Southeast Asia.

This makes Japanese companies look at its positive market and believe that they will have good business in the future. When other investors divest from Vietnam, Japanese investors will step in, but of course they still have to carefully research about the market. I think Japanese investors will increase the frequency to Vietnam may be in the next 6 months.

Vietnam is still the market with the most M&A deals with Japan. Commerce, IT, digital and real estate are currently the most interest to Japanese investors. But in the coming years food and food processing, digital technology, especially the retail industry, will attract Japanese investors most, together with consumer finance and startups.

Le Khanh Lam, chairman, RSM Vietnam

For a successful M&A deal, it is necessary to prepare carefully, especially choosing a good consultant.

Regarding M&A in Vietnam, the goals of businesses always change over time. At the moment, the real estate sector is slowing. Instead, from last year, there have been many deals related to the retail and agriculture sector. Recently there has been a shift to telecommunications, healthcare, education, and energy.

To make a successful M&A deal, I think, the preparation process before the transaction takes place must be very careful. Especially the legal, financial, and tax review issues.

It is necessary to appraise and review all activities and internals of the target enterprise to give the most comprehensive picture of that enterprise. From there, it is possible to accurately determine the value of the target business, recognise the visible and potential risks, and determine how much the actual cost will be for the M&A process.

However, in the short term, the M&A transaction has not been able to accelerate the progress. Therefore, what businesses need to do is to be cautious and choose a good consultant.

Bui Ngoc Anh, Hanoi managing partner, VILAF

The pandemic has caused difficulties and obstacles for businesses and investors in the past two years. However, there are many successful M&A deals even in difficult times, because at the end of they day, mutually beneficial is the most important.

Regarding documents for M&A deals, in any deal, businesses take time due to institutional issues, investment and capital sources. In additioon, legal review also needs to clarefy in any deal for both the seller and the buyer, in the spirit of mutual benefit.

However, in the past two years, with the new criteria, the authorities have cooperated and clarified the issue, so investors have received a lot of support and the result is that more reasonable M&A deals were done.

In the past 10 months, it takes more time for investors keen on M&A in real estate, resort real estate or energy fields because those sectors were in a difficult time.

Dominic Scriven, OBE, executive chairman, Dragon Capital Group

In a crisis, there will always be opportunities, and the Vietnamese market is also showing good signs.

Currently, investment in Vietnam is quite diversified. There are transactions between domestic companies. This is a great trend because they can understand each other better. The post-merger integration phase will also be much simpler.

Vietnamese businesses are now adapting well and participating in the global supply chain. New trends in technology, trade mechanisms, and innovation will create new opportunities, helping the Southeast Asian and Asian economies to recover.

To receive the new investment wave Vietnam should work on many issues. Among those, it is necessary to improve the capacity of state agencies. In the past two years, up to 15,000 civil servants have quit their jobs. This is a worrying situation.

Vietnam need to improve the arbitration system to resolve disputes about the international business environment. We have the Vietnam International Arbitration Center (VIAC), which is very important to the business environment. With this centre, we can intervene and easily improve the capacity and attractiveness of VIAC services.

Accounting and auditing companies also need to raise their standards, using international financial reporting systems and American-style accounting systems, such as ESAS, ASRS to meet the integration trend.

In addition, it is necessary to create a money transfer mechanism between foreign countries and Vietnam that is convenient for companies operating and doing business abroad, properly paying attention to VISA issues for tourists and foreigners.

Vietnamese businesses will also have to pay attention to minimising risks for their financial partners and improving their governance and stronger risk management, ensuring transparency in information provision, accountability and increased corporate accountability and accountability.

These are non-financial measures that help companies increase their probability of attracting investment capital.

Kazuhiko Yoshimatsu, general manager & chief representative, Tokyo Stock Exchange, Inc. Singapore

Japanese enterprises have extensive cooperation with Vietnam, especially in fields related to the stock market.

I have participated in many M&A deals in Vietnam and found the growth of Vietnam's capital market over the past 10 years was remarkable.

Tokyo's stock market now has companies from overseas Asian and ASEAN markets listed.

We want to develop closer economic relations with the companies listed on our market. The Tokyo Stock Exchange also supports Japanese businesses that want to invest abroad.

Two weeks ago, I signed a memorandum of understanding (MOU) with the Japanese trade promotion agency to promote trade between Japan and ASEAN countries to promote Japanese businesses into ASEAN countries. With this trend and support, it is believed that Japanese enterprises will invest more in Vietnam.

Accessing these possible areas of cooperation, I think there are several areas where the stock markets can cooperate. First, the competent bodies and the stock market need more capacity building activities. In this case, international companies can act as intermediaries in deals.

Second, the application of international standards will help the Vietnamese market appear more clearly in the eyes of foreign investors.

Looking ahead to future M&A trends

The global economic situation shows that mergers and acquisitions have been slowing down, with the possibility of a recession next year. Le Duc Khanh, director of Investment Capacity Development at VPS, talked with VIR’s Thanh Duy about why he has a more optimistic view of the future, with major restructuring and new deals likely to be agreed.

Implications of digital assets in M&A

Digital assets have gained a lot of attention over retail investors, institutional investors, companies and policymakers in recent years. Despite the dramatic decline of the market, the potential growth for digital assets over the upcoming decade is expected to be high and reach tenths of trillions of US dollars market capitalisation according to prominent money managers like Fidelity and Ark Invest.

Boutique M&A firms gaining ground

The boutique M&A advisory model will be an important piece of the puzzle to help businesses and investors embrace the current wave of opportunities in Vietnam more effectively. Founder & CEO of ASART Binh Le explains the key aspects of this oncoming trend.

M&A Vietnam Forum 2022: 'Igniting new opportunities'

The 14th Vietnam M&A Forum 2022 organised by Vietnam Investment Review under the auspices of the Ministry of Planning and Investment took place in Ho Chi Minh City on November 23.