Time of Vietnam M&A Market

10:17:44 AM | 8/14/2014

With the shift of economic institution, the handshake of big powers, the imminent signing of bilateral and multilateral trade agreements, and the government’s commitment to SOE equitisation, the Vietnamese business community has very favourable prerequisites for conducting billion-dollar mergers and acquisitions (M&A) in the near future.
Food, consumer goods in focus
According to experts, M&A deals in Vietnam have increased significantly in number and value of transactions since 2008 in the face of economic uncertainties. According to Capital IQ, Vietnam saw 92 successful M&A deals in 2008, 308 deals in 2012, and 120 deals in the first half 2013. M&A deals tend to increase towards the second half of the year. However, Vietnam M&A market cannot avoid such risks as the devaluation of Vietnamese dong in spite of the fact that the Government and the central bank stably controlled the situation, trade and budget deficit, SOE weakness, infrastructure development demand, and weakness in copyright and intellectual property protection. Therefore, M&A activity is forecast to be vibrant in the coming time.
Food, beverage, consumer goods and health care are of investor interests. This trend is stemmed from higher income level and stronger consumer spending. Real estate and financial service sectors will see slower growth due to intrinsic economic difficulties, limited high-quality transactions, and asset valuation barriers.
M&A blockbusters
Bui Quang Vinh, Minister of Planning and Investment, said opportunities are opening up for the M&A market after the Government agreed to sell stakes in 432 State-owned enterprises (SOEs) in 2014 and 2015. Besides, the new wave of M&A activity will be an important driving force to achieve the success of SOE restructuring programme.
Dang Xuan Minh, CEO of AVM Vietnam, said if seven big SOEs like PVGas, Mobifone and Vietnam Airlines are successful with their initial public offerings (IPO), Vietnam will rake in US$4.79 billion. This is a huge value. Besides, according to AVM Vietnam’s calculations, the second M&A wave in Vietnam (2014 - 2018) was estimated to generate a total value of US$20 billion, compared to the first wave (2008 - 2013) with US$15 billion, he added.
The most typical example is FPT Corporation. General Director Bui Quang Ngoc of FPT Corporation said that FPT aims at a 40 percent growth in the next three years in both organic growth and inorganic growth (via M&A). This group will spend US$50 million on M&A each year and it hopes to have two successful M&A deals a year. Recently, FPT acquired RWE IT Slovakia, a subsidiary of RWE, in mid-June 2014. With this big deal, FPT has a long-term information technology services provision contract worth tens of million of US dollars with RWE. With the boom in the IT market with new terms, technologies or solutions, FPT will focus on developing new solutions based on world tech trends. This solution will support sales service. "In other words, services, solutions and M&As are the three fields that FPT will focus in the next two years," said Ngoc.
Another famous M&A deal is Kinh Do Corporation’s acquisition of private coffee brand, Phindeli, to launch a new coffee name. Pham Dinh Nguyen, owner of Phindeli, famously bought Buford Wyoming Town in the US in 2012 and renamed it "PhinDeli Town". And, he injected some US$500,000 in nearly one year to make this place a coffee manifesto in the US and this helped him open the door to roasted ground coffee in Vietnam, estimated to value US$500 million. This M&A reminded specialists of many investors creating popular brands for sale like Ly Quy Trung - CEO Pho 24, Do Anh Tu - CEO of Diana, Phan Quoc Cong - CEO of ICP.
Apart from these two M&A blockbusters, the M&A market also witnessed deals in sensitive sectors. Vietnam Prosperity Bank (VPBank) acquired Vietnam National Coal - Mineral Finance Company (CMF) and renamed it VPBank Finance Company Limited (VPB FC). The VND1,000 billion company is wholly owned by VPBank. This trend is quite ‘hot’ as it allows banks to lend unsecured small loans. Besides, finance companies are also permitted to perform banking activities like credit card issue, fundraising, underwriting and factoring. Earlier, HDBank took over Société Générale Vietnam Finance Company (SGVF) and Maritime Bank purchased 64.1 percent of stake in Vinatex Finance Company.
The merger of Ninh Hoa Sugar Joint Stock Company (NHS) and Bien Hoa Sugar Joint Stock Company (BHS) is also considered a big deal. BHS purchased all stake at NHS by issuing additional shares which will be used to swap NHS shares at 1-to-1 ratio. After the stock swap, BHS will become the sole owner of NHS and NHS will be registered to operate as a sole-member limited liability company. The merger aims to create a big company with a stronger market foothold and enhance financial, managerial and operating capacity, a company official said.
M&A activity in real estate industry is not very vibrant but we still saw big deals. Hoang Anh Gia Lai Group transferred its Dong Nam Project (in Hiep Binh Phuoc Ward, Thu Duc District, Ho Chi Minh City) to Him Lam Group for over VND1,050 billion (US$50 million). The 35.3-ha project has 2,300 apartments and villas. Hoang Anh Gia Lai Group said it invested VND1,119 billion in this project, primarily for clearance compensation.
Vinacapital sold 53 percent of stake in Movempick Hotel Saigon to Hong Kong-based Tung Shing Group for US$16.1 million in the first quarter of 2014. Lotte Mart - a leading South Korean retailer - acquired Pico Plaza to expand its operations.

The heat of M&A market is drawing investors. Needless to say, this is one of effective economic leverages to revive poorly performing corporations and open up opportunities for new bosses who are quick enough to seize the opportunity. According to experts, the opportunity is equal to both private and State sectors.

Anh Phuong