M&A in Vietnam Likely to Be Interesting Investment Channel

The value of global M&A deals in 2010 reached US$2,200 billion and was expected to climb to US$3,000 billion in 2011. Vietnam is also affected by this global trend and enjoys effective impacts from this good environment.

 

The Vietnamese M&A market achieved good results in 2010. A recent survey by the world-leading consulting firm Grant Thornton International showed that 17 percent of privately held businesses (PHBs) plan to grow through acquisitions in the next three years, down from 19 per cent in 2010 but up from 15 percent in 2009.However, up to 20 percent of respondents believed that there will be a change in ownership relations in their companies, nearly doubling the global rate of 11 percent.

 

For Vietnam, investors are “smarter” with all investment channels and opportunities appear fewer in such fields as finance, banking and mining. Real estate sector is seen as the most attractive field to investors. Recent major deals have illustrated development of M&A in Vietnam. CMC Corporation invested over VND100 billion in Netnam Company. Most recently, FPT Corporation and its affiliated FPT Telecom Joint Stock Company planned to invest VND2,000 billion to purchase 44 percent of stake in EVN Telecom - a member of the Electricity of Vietnam (EVN), to participate the mobile market. Vietnam Steel Corporation (VN Steel) signed an agreement with Hanoi Lilama Shareholding Company to spend VND579 billion to take hold of 85 percent of a steel painting and galvanizing factory - an unit of Hanoi Lilama Shareholding Company - in Quang Minh Industrial Zone in Hanoi. This deal is typical of M&A transactions in Vietnam in 2010.

 

Firstly, finance, gold or real estate market is traditional investment channels that account a handsome proportion of capital. But, recent volatility in these markets directed big investors to M&A, a new investment channel.

In addition, corporate infrastructures, basic technological systems and personnel are ready for use and investors do not have to spend time training staffs and waiting for the construction of infrastructures to do business and start production. For example, it takes two years to complete investment procedures and build a US$20 million production factory. But, they do not have to do such things if they acquire that factory.

Besides, they do not have to build up the brand from the start; the customer base and network are available for use or development.

 

Moreover, legal frameworks like the Law on Enterprises 2005, the Law on Investment 2006 and the Law on Securities 2007 have constructed a more transparent and fairer legal framework for investors. Specially, a better investment environment will increase interests of foreign investors. This is a more interesting, secure and transparent investment channel than investments in securities or other areas.

 

In foreign countries, this activity is very popular and appeared long ago but it is rather new to Vietnam. Actually, Vietnamese enterprises involving in M&A deals have very deep knowledge of this form of investment. Especially, many foreigners join M&A deals and they are pretty familiar with this form of investment. Therefore, acquisition or takeover of a company in Vietnam is quite favourable to them. Starting up a business in Vietnam is more difficult than buying into a company to continue developing it and avoid complex business start-up legal procedures.

 

Moreover, it is worthier to take over a company operating in sensitive fields than do it from the start. Vietnam has begun opening up such service fields as telecommunications, banking, finance, security, distribution or communication. Acquisition or takeover of a Vietnamese company by foreign investors will be quite favourable because it already has permits, conditions or legal requirements.

 

Valuation is a process to measure the value of a company. This job involves in two main aspects: intangible and tangible values. Computing corporate assets mainly relies on auditing and valuation papers. However, these works are not highly reliable in Vietnam and the transparency of these activities also needs to be taken into account.

 

Measuring the value of intangible assets will relate to brand valuation. But, there are not specific methods and instruments to value a brand in Vietnam.

 

The solution to be taken immediately is to build standard brand valuation models and valuation criteria. There should be mandatory regulations on capital auditing, asset auditing and corporate valuation to define the value of a company before it starts negotiating an M&A deal.

 

Vietnam’s M&A market will be largely influenced by global movements. The nature of M&A is the shift in cash flows from this form of investment (stocks, gold or real estate) into other forms. M&A is also one form of ownership change. Previously, asset ownership came in tangible forms houses, gold, silver and other assets. But now, ownership is based on money-equivalent valuable papers. Confirmative relations of valuable papers make us own assets more easily in form of documents like money-equivalent stocks, bonds and valuable papers.

 

Therefore, when foreign investors brought a wave of M&A and a new perception of ownership to Vietnam, it will naturally grow up and become more professional. According to preliminary data provided by PricewaterhouseCoopers and Thomson Reuters, M&A activities expanded strongly in Vietnam in 2010 and were expected to boom in 2011 and become an interesting investment channel.