Picking the correct path in deal-making expansions

Nguyen Hoang Viet - Director of Investment Banking, SSI Securities Corporation

Notable sectors seeing a key focus for mergers and acquisitions (M&As) in recent times have been banking and finance, consumer retail, healthcare, education, and logistics, featuring such big names as Sumitomo Mitsui, Masan, SK Group, and more.

This year, meanwhile, many companies have filed initial public offering (IPO) applications. However, given the new securities law has only been in effect since the beginning of this year, there are some delays as adapting to the new regulations will take some time for market participants. However, we believe these delays will subside after a few months, after which we will see multiple large companies debuting.

In addition, Vietnam’s stock market has grown extremely strongly in the last two years. The market size is now about 4-5 times bigger than in 2019, thus many companies want to capture this opportunity to raise more capital.

For such a long time, private enterprises in Vietnam relied only on commercial banks to raise capital for investment. We believe run-ups in equity market size in the past few years has made many of them rethink raising capital through alternative channels, such as equities or bonds.

There are significant attempts by general domestic enterprises to see the bigger picture by improving corporate governance and implementing longer-term investment plans to pursue sustainable growth. IPOs are not only a step to raise capital, but a process to improve the governance and responsibilities of the company to investors and the public. In recent years, we have been proud to help many large corporations debut on the stock market, such as Vinhomes, Vincom Retail, Novaland, HDBank, TPBank, Dat Xanh Services, and An Gia Corporation.

Listing companies are now in a much better position compared to their private counterparts, as they can easily attract capital in many forms for future investment. We believe that Vietnam’s stock market is only at an early growth stage and so we hope to help facilitate more successful transactions.

For existing investors in Vietnam, we see two key approaches: foreign direct investment (FDI) and dealmaking through M&A deals. First and foremost, for FDI, there are some major advantages for overseas investors opting for this route – favourable taxes and tariff incentives, and flexibility in building, investing, and diversifying strategies. However, FDI can also face stiff challenges due to longer implementation timeframes and complex procedures. In some cases, the preparation process alone can be dragged on for years.

Indirect investment via M&A as a strategic capability could enjoy a competitive edge that peers would struggle to replicate, from fast execution time, minimal preparation uncertainties, clearer goals, and existing market share and local expertise. On the other hand, foreign acquirers might find themselves in the crosshairs due to constraints on restructuring uncertainties, foreign ownership limit issues, and the complexities of a culture clash between acquirers and existing management teams.

However, we still see M&As as the fastest route to enter the market as Vietnam’s economy is entering a fast-growing phase and is relatively open for global trade, with plenty of advantages. The country is also accelerating public disbursement, but recent poor performance has been partly blamed on the lingering pandemic.

Last month, the National Assembly Standing Committee held a nationwide online meeting chaired by the prime minister on the disbursement of public investment capital in 2021. The meeting discussed such investment up to the end of the third quarter and proposed solutions for a quicker pace of disbursement in the coming time.

Naturally, during this unprecedented pandemic, there are many factors why public disbursement has been deterred – evidentially, lockdowns and other restrictions have directly affected the progress of project construction. But quicker vaccination rollouts will push the country forward in a positive manner, and a full reopening will bring resumption to all construction activities.

We believe this is a critical time for Vietnam to upgrade and transform existing logistics infrastructure. Should the public investment plan continue on the right track, we believe it will enable foreign investors to participate deeper in Vietnam’s next wave of growth, since the major bottleneck in the nation’s logistics can be significantly improved.

Since most infrastructure investment is not open to foreigners, they can instead focus on logistics, consumer products, electronics, technology, healthcare, and education.