Opportunities for Post Covid-19 M&A Deals

For a group of individuals and businesses with good financial abilities and various experiences, the Covid-19 pandemic is a great opportunity to conduct mergers and acquisitions (M&A) at a bargain price.

Retail and service industries will recover fastest

Although the Covid-19 pandemic is spreading rapidly in many countries and causing severe damage to the global economy, Vietnam continues to effectively control the epidemic, while ensuring that economic activities are not interrupted, but with a narrower scale than before. The short-term economic growth is still significantly affected. In the first quarter of 2020, Vietnam's GDP increased by 3.82%, the lowest growth rate in the past 10 years. More than 18,600 enterprises have suspended business activities, an increase of 26% against the first quarter of last year.

Dr. Su Ngoc Khuong, Senior Director of Savills Vietnam, said that the retail, tourism and hospitality service sectors are expected to be hardest hit, while the manufacturing sector is also declining due to supply chain disruptions and lower orders because of the rapid decline in global consumption. The World Tourism Organization has revised down the prospect of international tourist arrivals in 2020 from 1% to 3%. This is the first time the number of international visitors is expected to decrease after ten consecutive years of growth. Vietnam has also witnessed a significant decline in international arrivals, of which China and South Korea were the two most important markets, accounting for 56% of international arrivals to Vietnam in 2019.

For the retail sector, the increase in social isolation measures has reduced consumption. Most business tenants said their revenues plummeted and expected rent reductions to share the burden. As for the the landlords, they are monitoring the progress and impact of the Covid-19 epidemic and considering measures to reduce rent by up to 50%.

Although the impact of the Covid-19 pandemic is expected to last until the end of 2020, the tourism and hospitality service industry may be the first to recover strongly and quickly. Like a spring becomes more powerful when pressed harder, with the advantage of the majority of visitors being domestic ones (accounting for 82.5% of total visitors in 2019) and major foreign markets such as China and South Korea, these groups of visitors are expected to return shortly after the pandemic is over. Covid-19 is also expected to accelerate the diversification of supply chains for production, opening up more opportunities for industrial properties in Vietnam.

Many opportunities for M&A deals

Amid the Covid-19 pandemic, solutions of mergers and acquisitions to increase capacity and restructure investment sectors are chosen by many large economic groups. According to the Ministry of Planning and Investment, within the first two months of 2020, the capital inflows, that foreign investors brought to Vietnam in the form of capital contribution and share purchase, reached over US$827.3 million.

Travel agencies, retailers, pharmaceuticals, and beverage companies, in addition to acquiring small units in the industry, have now set foot in new and potentially profitable areas such as entertainment - media, preschool education, tertiary education, and pharmaceutical processing. Some typical M&A deals in recent times include Hau Giang Pharmaceutical with Taisho, Vietravel with Kent International College, Tiki and Sendo. In transport and logistics field, Grab and GoViet intend to merge in the future. The Southern Logistics JSC has basically agreed to sell 100% of its capital to Indo Trans Logistics Group. Gemadept’s shares have been bought in a large amount by Sumitomo Corporation. Mapletree Logistics Trust also acquired Unilever's VND725 billion warehousing.

In real estate field, according to the report by Vietnam Association of Realtors, the real estate market in the first quarter of 2020 was extremely quiet compared to the same period every year. The supply, transaction and absorption rates were at the lowest levels in the past four years. Facing credit tightening and inablity to sell products due to the epidemic, investors with weak financial capacities are seeking to offer or transfer projects in the form of M&A or project shares.

According to Dr. Su Ngoc Khuong, the housing real estate sector has been negatively impacted in the short term by the ban on entry, disrupting the survey and execution of transactions by foreign visitors, in which Chinese, Korean and Japanese customers account for the largest proportion of real estate transactions with foreign visitors. However, real estate developers are still preparing new projects to meet the needs of domestic and foreign customers when demand recovers, with the expectation that Vietnam is still one of the most profitable markets with high rental rates and lowest real estate prices in the region. In January 2020, Mitsubishi Corporation and Nomura Real Estate Corporation announced the purchase of 80% of the shares of the Grand Park Project - Phase 2, with an area of ​​about 26 hectares, which is expected to develop more than 10,000 apartments in Ho Chi Minh City.

“Covid-19 is a difficult time for many domestic and foreign investors in general. However, for a group of individuals and businesses with good financial abilities and a lot of experiences, this is a great opportunity. Recently, the market has witnessed a lot of potential investors who have been ready to buy and transfer projects from investors who are facing difficulties in real estate. Savills Vietnam recognizes that since 2019, a number of projects have been under negotiation with an estimated value of over half a billion dollars. We hope that after the epidemic has gone, along with the very strong directives of the Government of Vietnam in supporting real estate businesses in recent times, more investors will seize opportunities, and soon the real estate market will become better," said Dr. Su Ngoc Khuong.

By Huong Ly, Vietnam Business Forum