No let up in Asian-led buying spree

December 11, 2021 | 10:00
Investors around Asia are continuing their buying spree in Vietnam as they bet on the country’s long-term prospects, which gives hope to the recovery of cross-border merger and acquisition activities.
No let up in Asian-led buying spree
The loosening of pandemic restrictions should see aspects of the economy move in the right direction, Photo: Shutterstock

Foreign investors from South Korea, Japan, Singapore, and Thailand are among those dominating Vietnam’s merger and acquisition scene as the most prominent players in the local market over the past few years, and their interest does not seem to be letting up.

Andrew D. Kim, manager of the Global M&A Center under the Korea Trade-Investment Promotion Agency, told VIR, “South Korea’s large business groups like SK, Hanwha, Lotte, and CJ, along with commercial banks, have been on the top of the buyer lists in Vietnam in recent time. As the largest greenfield-contributing country, South Korea is now leading the brownfield market as well.”

Kim further noted that since South Korea has a strong foothold in the manufacturing and assembly business in Vietnam, companies in the ecosystem naturally look for quicker entry through securing supporting companies in the sector. Manufacturing seems to spread over to the consumer market, therefore, securing a local marketing network is of high interest to South Korean investors as well.

“In short, manufacturing assets in supporting industries and local networks are what South Korean investors mainly look for,” Kim said. “Non-performing assets could attract opportunistic investors. However, investing in a non-performing asset is more for financial players rather than for strategic ones. And since Vietnam is still not rated at investment-grade level as a country, systematic investment flows from private market investors from the financial sector is hard to expect. We can expect limited flows from interested early-stage private market investors for now.”

According to Kim, South Korean investors are monitoring Vietnam’s pandemic control closely, and greenfield investment during the first 10 months of the year has shot up 17.6 per cent on-year.

“Once the physical restrictions for travel are lifted, we will be busy welcoming due diligence teams. Many potential South Korean investors expect next year to be one of the biggest years for mergers and acquisitions (M&A) in Vietnam,” he claimed.

Remaining on the radar

Meanwhile, Japanese investors are still relatively active in the M&A market in Vietnam this year, with seven completed transactions to date. Contrary to their reputation of being rigid and conservative, Japanese investors, especially leading conglomerates and trading houses with large cash balances, can be flexible in their decisions to deploy capital into the Vietnamese M&A market, according to Huong Trinh, managing director and head of Ho Chi Minh City at BDA Partners.

However, there are several key considerations for Japanese investors in Vietnam. Buyers from Japan tend to not diversify too far away from verticals in their core operations and focus on businesses with steady cash flows and margins, rather than businesses that are still in the early growth stages.

“Moreover, from discussions around transactions at BDA Partners, we understand that Japanese investors emphasise the importance of in-person due diligence. Though the current pandemic poses challenges to this requirement, investors with strong interest remain willing to overcome the restrictive travel policies,” Trinh said.

For example, in one of BDA Partners’ ongoing transactions in Vietnam, a due diligence team from Japan has recently completed the mandatory two-week quarantine process, and is now conducting site visits at various locations in the country.

Japanese investors have been especially active in M&A activities in the consumer finance and banking sector in Vietnam in recent years. With the largest deal in Vietnam so far in 2021 between SMBC Consumer Finance and VPBank Finance, Sumitomo Mitsui has become the next Japanese megabank to establish strategic partnerships in Vietnam, following the Mizuho-Vietcombank and Mitsubishi UFJ-VietinBank partnerships.

Other smaller Japanese financial institutions have also completed transactions in Vietnam, with notable examples such as Aozora Bank’s acquisition of a 15 per cent stake in Orient Commercial Bank in 2020 and Shinsei Bank’s acquisition of a 49 per cent stake in MCredit, MB Bank’s consumer finance arm back in 2017.

Trinh pointed out that food and beverages is another sector that has attracted keen interest from Japanese buyers regardless of the impact of the pandemic. This year, Morinaga Milk announced the acquisition of a 51 per cent stake in Elovi, a local dairy producer, while Maruha Nichiro acquired a 58 per cent stake in Saigon Food, a producer of ready-to-eat items.

In the energy sector, there was also a notable transaction in 2021 with Mitsubishi HC Capital’s acquisition of a 35 per cent stake in Trung Nam Wind Power, an energy company based in the south-central province of Ninh Thuan. This transaction represents an interesting shift towards opportunities in alternative energy by Japanese investors, whose M&A activities in Vietnam in the past focused more on oil and gas, with the most recent example being Tokai Holdings’ acquisition of a 49 per cent stake in Mien Trung Gas and V-Gas Petroleum last year.

Other sectors with strong M&A activities from Japanese investors are pharmaceuticals and manufacturing. These two sectors have had transactions of larger sizes such as Taisho Pharmaceutical’s acquisition of a 22 per cent stake in DHG Pharmaceutical for $128 million and Mitsui & Co.’s acquisition of a 35 per cent stake in Minh Phu Seafood for $153 million, both of which were completed in 2019.

Reviving industries

Meanwhile, Singaporean and Thai companies are still eyeing up Vietnamese assets. SCG, the leading industrial group in Thailand, bought a relevant share majority in local packaging manufacturer Bien Hoa Packaging Company.

Continuing with Thai investors, Super Energy Corporation has continued investing in the local solar industry, increasing its presence in the market and its overall capacity. Another deal involving Thai investors is the purchase of SHB Finance by Thailand’s Bank of Ayudhya.

Filippo Bortoletti, senior manager of International Business Advisory at Dezan Shira & Associates, noted that Thai investors prefer deals in consumer retail, energy, and consumer finance. On the other hand, Singaporean investors prefer investing in local real estate. He added that this year’s restrictions have failed to change the appetite of foreign investors, and have more likely just slowed down the process.

“That said, if we consider a post-pandemic world where there are no more restrictions for international travelling and the virus is defeated, then I can see huge opportunities coming from what is currently a dead industry, meaning tourism and accommodation. Of course, current appealing industries will continue to be good investment opportunities,” Bortoletti said.

According to him, the pandemic cooled down, temporarily, the local M&A landscape. Indeed, after a record second quarter, the resurgence of the pandemic hampered M&A activities during the third quarter. “But, following up the slow but progressive lift of restrictions, the backlog of manufacturing orders should favour the economic rebound. That said, the situation worldwide is still uncertain, therefore forecasts should be taken with a grain of salt,” said Bortoletti.

The Vietnam Competition and Consumer Authority under the Ministry of Industry and Trade forecast that the value of economic concentrations in the country will reach $4.5-5 billion for this year and $7 billion in 2022.

Trinh from BDA Partners said, “With prolonged social distancing, market conditions have become challenging especially for small- and medium-sized businesses in Vietnam. Companies looking to position themselves for recovery will need new capital injections for internal transformation and further growth to remain competitive, and they will be more than eager to restart conversations with buyers for deals that were on hold or that were lost. Thus, as travel restrictions are lifted, foreign investors are expected to carry on the momentum in M&A activities in Vietnam to bet on the swift recovery of one of the fastest growing economies in the region.”

Vietnam’s M&A overview in 2021 by international law firm White & Case

In the first three quarters, deals with disclosed value totalled $3 billion in Vietnam. With three months of dealmaking left in the pipeline, 2021 is on track to overtake 2020’s annual total of $3.9 billion.

The deal volume in 2020 reached a record high since 2006, and this momentum continued into the first three quarters of 2021 – a total of 41 announced deals were level with Q1-Q3/2020 figures.

This strong performance was largely due to an active Q2. The total volume of deals came to 19 during the quarter, reaching the highest quarterly volume on Mergermarket record. A quarterly deal value of $2.5 billion, meanwhile, marked the second-highest quarterly value on record, below the $5.2 billion struck in Q4/2017.

By Thanh Van

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