M&A: Growth and Breakthrough

M​​&A is no longer a new and strange business in the world. Despite volatile global and domestic economic development in the recent years, Vietnam has emerged as an attractive market for foreign investors. And, Vietnamese businesses are also playing an increasingly active role in accessing and concluding M&A deals. Specifically, in 2012, 45 percent of M&A deals were made by Vietnamese companies. In the past five years, M&A deals arranged by companies have accounted for 77 percent. However, the value of these M&A deals was quite small, primarily in the range of US$2-5 million a deal. Only a few deals reached US$10-30 million each.

According to the M&A Vietnam Forum, foreign investors accounted for 66 percent of deal value. Japan was the leader in M​​&A business in Vietnam, both in deals and value. Popular deals included Mizuho Bank’s buying into Vietcombank to become the latter’s strategic partner, Unicham’s acquisition of 95 percent of stake in Diana, Sumitomo’s buying into Bao Viet Holdings, and Mitsubishi UFJ’’s buying into Vietinbank.

 

Consumer goods industry had the biggest M&A value of US$1 billion in 2012 alone, accounting for 25 percent of total M&A value in that year. Buyers tended to use M&As as a step to expand value chains and market approaches. In 2013, M&A deals are forecast to drop. Indeed, the figure was just only US$1.8 billion in the first six months of 2013.

 

Mr Marc Djandji, Deputy Director of PetroVietnam Securities Incorporated (PSI), said, this forecast was based on macroeconomic conditions in the region. From now till 2015, the ASEAN region is the most sustainably developing region in Asia. Accordingly, ASEAN will become a unified economic community, with many priority policies introduced by member states to catch the flow of FDI. Therefore, a robust M&A trend is forecast to take place in this region.

 

ASEAN is also a potential market as it has 600 million people, accounting for 9 percent of the world population. Young population structure and more people with increased incomes provide good conditions for retailing, consumer goods production, health and education to develop. With such conditions, Southeast Asia will actually become a destination for many companies and multinational corporations in the world. This is an opportunity for the new wave of M&As to roll in, he said.

He said Vietnam is a very appealing market and catches the interest of for foreign investors. Vietnam has received huge flows of capital from Japan and South Korea. Even China is also looking for investment opportunities in Vietnam.

 

However, to catch this wave of investment, he recommended companies seriously prepare strategies from now till 2015. And to do this, Vietnam companies should seek advice for branding development from financial investment banks to increase the corporate value. If this work is done well, companies can be active to negotiate with partners. On the other hand, Vietnamese companies are also aware that banks are now no longer playing an intermediary role but only advising on business development. M&A is a long process that requires an overview assessment of corporate elements. This is the basis for enterprises to have suitable M&A solutions.

 

Professor Nigel Denscombe, specialist of international strategic management, said M&A is an appetite pie for potential investors and businesses in around the world and in Vietnam as well. But, M&A still faces a lot of barriers to exert its good effect on macroeconomic situation of every country. Accordingly, there are three major challenges to M&A activity. The first challenge comes from the legal system. M&A activity is still regulated by different legal documents with general provisions, not systematically and consistently defined and enforced.

 

The second challenge lies inside both buyers and sellers. In fact, many companies want to buy and many others want to sell but most of them do not know what M&A activity is or how it will be after M&A. They themselves cannot find suitable partners.

 

And, the final challenge comes from intermediaries. Currently, many securities brokerage houses, financial consultants and auditors advise on M&A activity. However, due to legal drawbacks, personnel, professional, database and information, they have not been able to make a “market” for buyers and sellers to meet each other.

Huge profitability from M&A can be seen by any companies and investors but such outcome must be made on the cooperation of business leaders, attorneys and investment banks to appraise the exact value of acquired companies, draw the overall picture of products, services, staff, culture, and other factors of concerned parties.