South Korean M&A part of wider plan

South Korean M&A part of wider plan, illustration photo

Conglomerate SK Group has unveiled plans to acquire a $1 billion stake in Vietnamese real estate-retail-tech giant Vingroup, with the transaction set to be carried out as early as next month. Vingroup recently sought a shareholder vote on a plan to raise at least VND25 trillion ($1.09 billion) through a private placement to five foreign investors.

Last September, SK Group also scooped up a 9.5 per cent stake in Vietnamese consumer giant Masan Group Corporation for about $470 million. SK Group is one of the largest conglomerates in South Korea, with a successful track record of building leading domestic and global businesses both organically and through acquisitions. The group is keen on growing its footprint in the Southeast Asian region and sees Vietnam, the region’s fastest-growing economy, as a strategic base.

Woncheol Park, representative director of SK Southeast Asia Investment said, “Vietnam is an important foundation for our Southeast Asian strategy. We believe the partnership model is crucial to succeed in this region.”

Another South Korean giant, Hanwha Asset Management, paid $400 million for 84 million preferential shares in Vingroup last August. The sale came after Hanwha’s unsuccessful attempt to join the public debut of Vinhomes, the property arm of Vingroup, back in May.

Jiun Park, deputy director of the Global M&A Centre at the Korea Trade - Investment Promotion Agency (KOTRA), said that South Korean investors are becoming more active in Vietnam’s merger and acquisition (M&A) market, with deals worth $200 million being clinched in the first half of 2018. They have also extended their reach to regional markets like Myanmar, Laos, and Cambodia. There are immense opportunities for partnerships between the two sides, especially as South Korean companies are seeking opportunities to expand in the region.

Meanwhile, Kim Hyeong Soo, managing director of the Korea Venture Capital Association, told VIR that Vietnam’s M&A market is becoming increasingly more mature in light of the government’s efforts and the blooming market. Thus, Vietnam has caught the eyes of South Korean investors over the past few years, which has resulted in a significant rise in the number and value of M&A deals by South Korean buyers.

According to the KOTRA, capital flow from South Korea to Vietnam has changed a great deal over recent years. South Korean companies have mainly invested in the field of manufacturing. However, as Vietnam’s economy has been developing, these companies have created interest and are enlarging their investments in various fields such as distribution, healthcare, education, services, and smart city construction. Many investments have been implemented not only by large companies but also small- and medium-sized enterprises (SMEs).

Park from the KOTRA said that many South Korean SMEs have enquired about the process of conducting M&As in Vietnam and called this “a third wave of investment.”

A characteristic of this third wave is the strategic alliances between South Korean and Vietnamese companies. The South Korean partner can provide modern technology, while the Vietnamese side can help with brand presence, market share, and product distribution.

Another wave of South Korean investment is likely to be seen in the fields of banking, finance, and fintech. Lotte Card spent nearly $75 million securing 100 per cent of Techcombank Finance a year ago, and became the first South Korean credit card company to enter the local finance market. Shinhan Card, in early 2018, also acquired Prudential Finance for over $150 million. Meanwhile, Mirae Asset Life scooped up a 50 per cent stake in Prevoir Vietnam Life Insurance in 2017 for $52.6 million.

Jacob Won, founding partner at Locus Capital from South Korea, told VIR that most large-scale South Korean companies continued showing strong interest in Vietnam.

The reasons for such strong interest include the country’s overall economic growth potential and geographic proximity to South Korea. Vietnamese consumers are also partial to this nation and its products.

However, Won pointed out that it has been difficult to find a suitable acquisition target as most of the available companies are quite small for South Korean companies to consider. In addition, these companies generally look for opportunities to acquire a controlling stake from day one, while Vietnamese owners are reluctant to give up management control and only look for growth capital.