As the mergers and acquisitions market in Vietnam enters a new era, various changes are underway to foster growth in the right direction for Vietnam’s economy and businesses.
Choosing the right investors
At last week’s Vietnam M&A Forum 2018 in Ho Chi Minh City, senior officials, experts, businesses, and investors discussed the future growth of Vietnam’s mergers and acquisitions (M&A) market.
After 10 years of booming M&A activities in the country and 30 years of foreign direct investment attraction, many believe that now is the time for Vietnam to map out a plan for the next phase of growth.
According to Minister of Planning and Investment Nguyen Chi Dung, in the new era, Vietnam will become much more selective about M&A inflows from overseas. Specifically, foreign investors should be willing to help with Vietnam’s environmental preservation plans and protecting Vietnam’s natural resources.
“We’d like to attract foreign investors that can connect well with Vietnam’s domestic companies. Technology transfer and co-operation is also key, as it is the basis of sustainable growth in the Industry 4.0 era,” said Minister Dung.
The minister said he is upbeat about the future of M&A in Vietnam, which he considers a more flexible process than direct investment.
To prepare for the next era of M&A inflows, the government is taking some big steps. First, deputy CEO of the State Capital Investment Corporation Le Song Lai noted that there are 140 state-owned enterprises (SOEs) slated for equitisation between now and 2020, including heavyweights Vinamilk and FPT Corporation. Decision No.1232/2017/QD-TTg, for the first time ever, has specified the name of these SOEs, as well as the anticipated amount and timeline of state withdrawals.
On the local level, Deputy Chairman of the Ho Chi Minh City People’s Committee Tran Vy Tuyen said that Vietnam’s biggest city is preparing for 39 SOE equitisations between now and 2020. In line with the national guidelines for new M&A transactions, Ho Chi Minh City will be very careful in selecting the right partners for its companies.
“We seek trustworthy and high-tech investors who can push our companies towards sustainable and long-term growth,” said Tuyen.
At the same time, the Vietnamese government is nurturing the stock market and striving towards emerging market status, providing investors with a liquid and transparent environment for both M&A inflows and exits.
Chairman of the State Securities Commission Nguyen Van Dung noted that the Securities Law is slated for revision in 2019, and regulators are pushing to implement the book-building method for SOE equitisation. This demand-based sale method is crucial to attract foreign investors in the new era.
Growing interest from foreign SMEs
In the past decade, there has been a growing number of big names from abroad involved in Vietnam-based M&A transactions. In the new era of growth, however, the M&A fever will extend to small- and medium-sized enterprises (SMEs) from overseas, according to international experts.
The trend is particularly prominent for Japanese and South Korean investors.
Jiun Park, senior deputy managing director at the Korea Trade Investment Promotion Agency (KOTRA), said that many South Korean SMEs have enquired about the process of doing M&As in Vietnam. Park called this “the third wave of investments from South Korea”, following the first wave conducted by conglomerates in labour-intensive industries and the second one by consumer goods companies.
“A characteristic of the third wave is 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 in Vietnam,” said Park.
The list of sectors is also more diverse than before, now expanding to pharmaceuticals, logistics, and manufacturing, according to Young-sup Joo, former South Korean Minister of SMEs and Startups.
Joo added that this wave is encouraged by the South Korean government, which set up the New Southern Initiative earlier this year. In the first half of 2018 alone, South Korean M&A deals in Vietnam have reached $200 million, so it is likely that 2017’s figure of $300 million will be well surpassed.
Masakata Sam Yoshida, senior managing director at Recof Corporation, said that the same trend can be observed in Japan. After seven years, Yoshida is seeing Japanese SMEs following in the footsteps of bigger corporations. According to the consultant, SMEs are more flexible in their strategy and can execute deals more quickly than conglomerates.
“Interestingly, succession-driven M&A from Japan to Vietnam have grown six-fold in the past six years. Some Japanese investors forecast that succession problems, which are already taking place in the ageing Japan, may spread to Vietnam in the next 30 years,” said Yoshida.
The consultant predicted that more M&A transactions of this type will be conducted in the future, especially if Vietnamese companies struggle to groom the next generation of senior leaders.
A new path for post-M&A integration
Another issue that has caught the attention of investors and officials alike is post-M&A integration, particularly between Vietnamese and foreign partners. This is not a new problem, but interest has recently revived due to conflict cases such as with South Korea’s Lotte and Vietnam’s Bibica, as well as VinaCapital and Ba Huan JSC.
Investors and experts believe that post-deal issues can be avoided by setting mutual goals, showing empathy, and reaching a compromise.
Nguyen Cong Ai, partner at KPMG Vietnam, advised that before embarking on a deal, companies should be clear about what they want and find investors with a mutual goal.
Specifically, if the goal is purely finding new capital, then an investment fund is more appropriate, while companies wanting to improve corporate governance and seek new markets may shake hands with strategic partners in the same sector. “Both sides should have a clear strategy before setting out to find M&A partners,” said Ai.
Nguyen Thi Tra My, deputy chairwoman and CEO of PAN Group, believes that accepting cultural differences is very important. For example, earlier this year, PAN Group took over Sao Ta Foods JSC, a food firm headquartered in the Mekong Delta province of Soc Trang. The vast majority of employees at Sao Ta are of Khmer origin, and PAN Group respects that these staff members have different traditions and holidays.
Phan Xuan Can, chairman of real estate brokerage Sohovietnam, said that many Vietnamese private companies have their roots in family-owned businesses, where decisions used to be restricted to family members.
“Many M&A deals fail as Vietnamese executives are afraid of yielding their power to outsiders,” Can said.
Experts believe it will take time for Vietnamese companies to get used to external voices, especially from foreign investors with a very clear set of objectives and often a hands-on approach to corporate governance.
It is also important to note that in the new M&A era, companies and investors in Vietnam will not be alone in finding their way to “marital bliss”, as the support system is growing more sophisticated. This includes the legal framework as well as the network of investment bankers, consultants, lawyers, and advisors.
“A few years ago, it was very hard for us to do M&A in Vietnam due to the lack of advisory firms with due diligence services. Nowadays, we can find a growing range of providers here and that makes us more confident in investing,” said Fan Li, principal at Warburg Pincus, which recently poured $1 billion into the initial public offering of Vincom Retail and Techcombank, as well as setting up a joint venture with Becamex IDC.
Phuong Ngoc report on VIR
