Vietnam turns tide of M&A downturn

Foreign M&A investors are expected to turn to new fields, with higher-calibre deals Photo: Shutterstock

Deal-making momentum in the Asia-Pacific region may slow down in the coming years as trade uncertainties and fears of global recession remain.

Despite the slowdown in global deal-making due to an unstable global economy, the Vietnamese M&A scene is expected to be more active in 2020 because of the country’s political and economic stability, with GDP growth reaching 7.02 per cent in 2019.

Dang Thanh Son, partner at Baker McKenzie’s Hanoi office

While the global economy is slowing down in reaction to a challenging environment impacted by volatile geopolitical events, in Vietnam, a number of high-value M&A transactions took place in 2019 in a number of sectors, such as food manufacturing, real estate, and retail. Most high-profile deals involved foreign investors from South Korea, Japan, Thailand, and Singapore. In addition to significant investments made by foreign investors, there were a number of domestic investors actively taking part in M&As.

A number of high-value M&A deals took place in 2019. For example, SK Group purchased 6.15 per cent of Vingroup for $1 billion. KEB Hana Bank acquired a 15 per cent stake in BIDV for $882 million, and Sumitomo Life invested $173 million for a 5 per cent stake in Bao Viet Holdings.

The market in 2019 also witnessed investments by local investors such as the deal between VinCommerce and Masan Consumer under Masan Group to establish a consumer-retail group. Vinamilk has also acquired a majority stake in Moc Chau Milk JSC.

In terms of deal structuring, share acquisitions through public tender and asset acquisition are not popular in Vietnam. Recent M&A deals in Vietnam have taken the form of private equity investments, purchases of primary shares, or private put-through transactions via the Vietnam Securities Depository in a joint-stock company or charter capital purchases in a limited liability company.

Over the last two years, despite a slowdown in global trade, Vietnam reported the second-highest value of M&A deals only after Thailand in the ASEAN. In 2020, M&A remains an attractive channel of investment in Vietnam and is set to remain a crucial mainstay of corporate strategies for growth and development. The US and China signed a phase-one trade deal which aims to relieve tension between the two largest economies. This can promote M&A activities and foreign investments at a global level, and Vietnam stands to benefit from these trends.

In 2019, it was estimated that Vietnam only contributed to 3 per cent of the deals in Southeast Asia by deal value. This number will likely increase in 2020 when the government starts initiating the equitisation of state-owned enterprises (SOEs). Under Decision No.26/2019/QD-TTg of the prime minister on SOE equitisation, 93 SOEs will be equitised by the end of 2020. This includes a number of large SOEs such as Agribank, Vinacomin, Vinafood 1, VICEM, MobiFone, and Urban Infrastructure Development Investment Corporation.

The SOE equitisation and state capital divestment will provide plenty of opportunities for private investors to invest in some of Vietnam’s leading market players in industries such as banking, mining, telecommunication, and construction.

Following Vietnam’s entry into the EU-Vietnam Free Trade Agreement, the EU-Vietnam Investment Promotion Agreement, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, the Vietnamese government would like to increase foreign capital inflows and encourage foreign players to seek investment opportunities in Vietnam.

In addition, changes to local legislation will improve the legal framework so that it will align closer with the expectations of foreign investors. With new legislation such as the new Law on Securities and the new Law on Competition, the government aims to improve the legal framework for the securities market by further aligning it with the overall development of the Vietnamese financial sector in the coming years.

If the trend for M&A in 2019 was renewable energy, in 2020, it is expected to turn towards the banking, retail, logistics, and fintech industries. The project on restructuring banks in 2016-2020 will encourage the merger of small banks and credit institutions into larger entities, which will promote more M&A opportunities in the banking industry.

Unlike in 2019 where foreign investors usually contributed small-scale deals with values ranging from $5 to $10 million. In 2020, M&A activities will likely involve medium-sized deals in logistics and retail with the value of $20-100 million, and even large deals in the banking and telecom industry with values over $1 billion. The value of M&A deals in Vietnam may reach $8 billion in 2020.

Despite political stability and high GDP growth, M&A activities in Vietnam are still relatively small, with 70 per cent of transactions being small- and medium-sized deals. In order to maintain an attractive M&A market, not only are changes to legislation required, but changes to corporate governance practice in local companies are also crucial. Local target companies will need to have well-organised corporate documents and records.

The local company’s managing officers such as CEO and CFOs must be familiar with the due diligence process to ensure that the target company will provide sufficient support, which includes setting up the data room and the scheduling of contract negotiations. This is important because sophisticated strategic purchases usually follow an intensive and thorough investigation of the target company by the buyer’s strategy and advisory teams. To facilitate the deal and manage different expectations, the local company should also consider engaging both financial and legal advisors from the beginning.