M&A soar in volume and value

Telecommunications, energy, and infrastructure are expected to see high value of M&A deals in the coming time

Continuous growth

It was announced at the recent Vietnam M&A Forum 2016 in Ho Chi Minh City that the value of M&A deals in Vietnam increased from US$1 billion in 2009 to US$5.2 billion in 2015.

Preliminary statistics show that the value of M&A deals in Vietnam reached US$3 billion in the first half of 2016, up 28 percent from the same period last year. It is forecasted to reach about US$6 billion by the year’s end, meaning a 500 percent increase compared with 2009.

In the last several years, M&A deals could be seen in various fields, of which retail and consumer goods sectors accounted for 38.46 percent of total value of M&A deals in 2015. Typical examples included the deal under which the Central Group (Thailand) acquired the Big C supermarket chain from the Casino Group (France) at a price of US$1.14 billion; the Singha Group became a strategic partner of Masan by acquiring 25 percent of the stock at Masan Consumer Holding and 33 percent of the stock at Masan Brewery with total value of US$1.1 billion; and Vingroup’s acquisition of the Maximark supermarket system.

According to the Vietnam M&A Forum 2016 Organizing Board, M&A deals involving domestic businesses accounted for 60 percent of the total number of deals but most of them were small to medium in value, averaging about US$5 million per deal. Meanwhile, deals involving foreign businesses accounted for a smaller volume but were bigger in value, ranging from US$30-100 million or even billions of US dollars each.

Thai, Japanese, and Singaporean companies are major acquirers in the Vietnamese M&A market. While Japanese companies have become strategic investors of airlines, petroleum, and pharmaceutical firms, Singaporean companies have been engaged in commercial real estate M&A deals, and Thai companies have entered the potential Vietnamese retail market with 90 million consumers.

Prospects for breakthroughs

The Ministry of Planning and Investment predicted a significant increase in successful M&A deals in the coming time thanks to opportunities from international integration and positive impacts of recent policy changes.

According to Le Trong Minh, Editor-in-Chief of the Vietnam Investment Review and Head of the Vietnam M&A Forum 2016 Organizing Board, deepening international integration through a number of bilateral and multilateral free trade agreements has brought Vietnam great opportunities to attract investment through M&A deals. Vietnam has become a member of the ASEAN Economic Community (AEC) established in late 2015. Foreign businesses investing in Vietnam directly or through M&A deals will be able to access a large ASEAN market with more than 600 consumers, a young workforce, and a quickly growing middle class. The AEC has made ASEAN, including Vietnam, an attractive destination for investors worldwide, creating strong waves of investment into the region. Therefore, foreign direct investment and M&A in Vietnam have increased strongly in recent times and are expected to continue growing in the coming period.

Deputy Minister of Planning and Investment Dang Huy Dong said Vietnam’s amended laws on investment and enterprises have had good effects after one year of their validity. Tens of governmental decrees providing detailed stipulations on the implementation of new laws have created favorable conditions for investment and business activities. The government has issued Resolution 35/NQ-CP dated May 16, 2016 regarding business support and development and administrative reform acceleration. These legal documents showed the government’s determination to create a safe and transparent investment environment, encouraging domestic and foreign investors to further expand operations, and promoting M&A in Vietnam.

The recovery of the real estate market and Vietnam’s participation in the Trans-Pacific Partnership are other factors stimulating M&A growth. Moreover, 2016 marked the beginning of a new cabinet tenure with a strong will to accelerate the equitization (partial privatization) of state-owned enterprises and develop the private sector. Amended business and investment laws and a stable macroeconomic environment have encouraged domestic and foreign businesses’ involvement in M&A deals.

There are also factors hindering the success of M&A deals in Vietnam. These include the instability of the regional and global economies as well as challenges facing the Vietnamese economy (low labor productivity, competitiveness, and economic efficiency; inadequate legal framework for M&A). In the context of very high demand for economic development, Vietnam needs to further facilitate M&A.

Nguyen Hoa