If there is any company persistent with a development strategy based on mergers and acquisitions (M&As) for a long time but it still maintains its industry leadership position, it must be Kinh Do Corporation (KDC). On this way, it tastes a lot of sweets, but it cannot however avoid deep bitterness. Kinh Do Corp is adapting and self-perfecting on its ambitious journey.
Kinh Do Corp is a leading company with an M&A strategy. Together with new product development, the corporation continuously expands its operations by means of M&As.
Leader in M&A
Right in 2003 when the concept of M&A was relatively new to most businesses in Vietnam, Kinh impressed the industry with the takeover of Wall's Cream owned by Unilever, which held more than 50 per cent of cream market share in Vietnam at that time. After nearly 10 years of operation, Kido's still holds the top spot with more than 60 per cent of market share of medium and high grade cream in the country. Its profit annually increases 40-50 per cent, according to Kinh Do.
Recently, Kinh Do Corp reaffirmed its determination to become a leading food company in Vietnam on many business fronts following the acquisition of Vinabico Company. "This is a typical M&A model the company has pursued," said Tran Le Nguyen, Vice President of Kinh Do Corp. This deal enabled Kinh Do to achieve the goal of expanding business scope, i.e. fresh cake and decorative confectionery, that Vinabico is taking the lead.
Earlier, Kinh Do Corp also marked a major milestone for its M&A history by the merger of North Kinh Do (NKD) and Kido's in 2010. After the deal, revenues in 2011 were 1.7 times higher than the estimation at the time of merger.
These are good M&A deals of Kinh Do Corp. However, the corporation has also felt bitterness in this business, particularly the investments in Tribeco and Nutifood. These two deals caused a gross loss of VND70 billion to Kinh Do Corp and sent its net loss in the second quarter to VND9 billion.
Failures called TRI and Nutifood
An experienced M&A consulting company said Kinh Do Corp had not promoted its best strengths in TRI deal. First, Kinh Do did not make good use of TRI distribution system and support TRI to develop more effectively by utilising its broad distribution system. Next, because holding fewer shares than Uni President (35 per cent versus 43 per cent), Kinh Do did not have enough power to impact business strategy, causing its business to trail in the expected direction. Later, Kinh Do CEO Tran Le Nguyen admitted that, "Kinh Do faced difficulties in raising suggestions for strategic management."
In addition, Kinh Do-chosen companies lacked a close connection to its core businesses. TRI did not focus on developing key beverage products but spent too much on financial investment and incurred losses, including cross-investments into KDC and Kido's shares. According to its financial reports, TRI suffered a total loss of more than VND80 billion in 2009, including VND50 billion from financial investments. Particularly, provisions for KDC share price reductions valued more than VND5 billion.
Similarly, after allying with Nutifood, both Kinh Do and Nutifood invested in noncore businesses, foods but real estate. The two companies did not create any joint products based on their traditional food businesses. "So, like TRI investment deal, the objective of Nutifood investment deal was not merely to do core business but also to invite speculation," said the consulting company.
Speculative intension was also reflected in Kinh Do’s buying into Vinabico in 2008. At that time, apart from letter-printed cakes like Kinh Do, Vinabico also produced blue-crab snacks and chicken snacks. These brands were a far cry from Kinh Do Corp’s product quality and brand name. But, the headquarters of Vinabico were located on a trunk road in Binh Thanh District, very close to downtown Ho Chi Minh City, not in Binh Duong province as it is now. Vinabico’s business lines were probably not the main target of Kinh Do Corp’s acquisition. The business location seemed to be a greater attraction," said the company.
M&A with new formulas
Tran Kim Thanh and Tran Le Nguyen are attached to the success of Kinh Do Corp’s M&As in the past 10 years. But, perhaps they are also placed under highest pressures weighed by recent unsatisfactory results. For example, the cost of goods sold on revenues turnover at the end of 2011 was more than 22 per cent, much higher than competitors like Bibica (19 per cent) and Hai Ha Confectionery (5.8 per cent). The corporation’s net profit was down 48 per cent year on year in 2011. Its short-term debts also rose 73 per over 2010.
Kinh Do Corp is facing with numerous challenges in effectiveness in M&A-driven growth strategy. Even so, Mr Nguyen proves to be consistent with the chosen path. "We are still considering M&A factors. Currently, we focus on restructuring our apparatus to strengthen the foundation for the continued M&A strategy in the coming time, "he said.
He added that Kinh Do Corp is concentrating on financial restructuring and personnel restructuring for M&A activities.
When stepping into a new business field by way of M&A, Kinh Do Corp will certainly need more staff knowledgeable about the target industry to help it effectively run the new business. Currently, Kinh Do Corp is organising and operating the paradigm of a strategic business unit. Through this model, the group can replicate the M&A system and expand operations easily and quickly.
In addition, the group aims to improve the efficiency in business operations and assets. Assets are not limited to physical properties like factories and machinery but also include financial assets. "We will review capital use and capital asset efficiency. Our objectives are to enhance the efficiency in food business and the efficiency in property use," he added.
The group believed that this restructuring would drive average annual growth to 30 per cent. And, by 2015, Kinh Do Corp expects revenues to reach VND10,000 billion, excluding earnings from acquired entities.
Remarking on Kinh Do Corp’s M&A deals, Nguyen said that Kinh Do actually obtained remarkable successes. As regards business performance, apart from scale expansion, product diversification enabled Kinh Do to gradually end impacts of seasonal factors.
With M&A deals, the firm’s horizontal chain of products has expanded from confectionery to a variety of new categories such as ice cream, yogurt, cream, milk and cheese. And, more recently is the Pocky snack, in a joint venture with Glico.
Nguyen said that in the coming time Kinh Do Corp will always focus on developing its core businesses, foodstuff and confectionery. However, in order to boost up growth rate, the corporation will continue with the M&A strategy to expand product chains to serve consumer needs and increase its product presence in people's lives. Kinh Do targets at good-performing, well-branded, well-governed or potential companies that will give a boost to the group’s growth.
"In addition, we will cooperate with our partners to seek the opportunity to globalise Kinh Do brand name," he concluded.
NCDT
Vietnamese
