World-famous resilience keeps up M&A appetite

Nicolas Audier, chairman of EuroCham

Can the pandemic help speed up mergers and acquisitions (M&A) deals for foreign dealmakers in the coming months as cash-starved Vietnamese companies seek funding to overcome their difficulties?

The M&A market in Vietnam is strong and vibrant. In short, this is because Vietnam has for some time been an attractive destination for foreign investors, and M&A deals are considered one of the most effective forms of market entry. For this reason, M&A transactions have grown in recent years – the total value of M&A deals reached $1.9 billion in the first six months of 2019 – and should continue to do so even after the COVID-19 pandemic. It is possible that the pandemic could speed up M&A deals as some companies will become more attractive. However, this is just continuing the trend of foreign investment in Vietnam which started some years ago as the country’s economic growth put it on the map of international enterprises, and has since accelerated with the US-China trade war and the potential of various free trade agreements in place.

Vietnam’s swift and successful reaction to the pandemic, which has been applauded around the world, has reaffirmed that this is one of the safest and most attractive places to do business for international investors. Indeed, Vietnam is now opening up again, after tough but effective social isolation measures.

This means that companies are now better able to return to normal, profitable business operations compared to elsewhere in the world where restrictions to business operations are still in place, and this is contributing to an increasing interest in M&A activities. In fact, Vietnam could find itself in a fortunate position. Investors in other parts of the world which have been less successful in tackling the pandemic, and are now facing severe short-term economic shocks in their home countries, look for new opportunities in more attractive markets. Vietnam, where GDP growth of around 5 per cent is predicted, could benefit in this scenario.

The health crisis has created both pros and cons for M&A, so how will it impact M&A transactions in 2020 in Vietnam?

We have seen some M&A transactions temporarily put on hold because of COVID-19, however, many others never stopped and are still proceeding as normal. The fact that Vietnam was able to return to normal business operations so soon compared to other countries has helped in this regard and reaffirmed its reputation as a safe, competitive, and attractive place in which to do business. Of course, despite the significant short-term disruption of COVID-19, Vietnam also holds some longer-term advantages for foreign investors.

For instance, the EU-Vietnam Free Trade Agreement (EVFTA) should shortly be ratified, after an upcoming vote in the National Assembly of Vietnam. Many European investors will want to position themselves in Vietnam in order to unlock the full benefits of this agreement.

In particular, the EVFTA will open up new opportunities for European investors. For instance, within five years of its entry into force, EU banks could invest up to 49 per cent in some joint-stock commercial banks. Other sectors which will soon be further opened to EU investors include higher education and telecommunications – both of which have high potential for growth in the future.

The EU and other regions are increasingly worried that businesses will be vulnerable to hostile takeover bids from overseas investors. Are there any concerns over Vietnam's private equity industry, which could be sitting on a cash pile worth millions of dollars?

Europe has been hit particularly hard by the coronavirus, so some European companies could see an increased interest in M&A deals from foreign investors. However, Vietnam is one of the few countries that is forecast to see positive economic growth in 2020. So, there should be no worries about so-called hostile takeovers – just an increase in foreign investment from companies looking for a safe, secure, competitive, and business-friendly market in which to invest.

Vietnamese private equity companies with significant cash reserves could react quickly to developments in the market, which will undoubtedly be unpredictable as the impacts of COVID-19 continue to impact international markets and global trade.