VietNamNet
M&A to grow on after record 2017

Last update: 11:43 | 10/08/2018

After a record-breaking 2017, mergers and acquisitions (M&A) volumes are poised for further expansion driven by growing investor confidence in Vietnam. 

Strong GDP growth, favourable demographics, and a robust pipeline of state-owned enterprise (SOE) equitisation are enhancing the environment for investments. While investors need to get more familiar with some of the challenges in Vietnam, they should act early to take advantage of the opportunities.



{keywords}

With investor confidence growing and several SOE divestments on the horizon, the Vietnamese M&A market is set to keep growing this year



Vietnam has one of the most active M&A markets in the region, and 2017 was a record year in terms of volume, with transaction value reaching $10.2 billion, an increase of 175 per cent over 2016. Landmark deals include Thai Beverage’s nearly $5 billion purchase of a 53.59-per-cent stake in Vietnam’s leading brewer Sabeco, and Jardine Cycle & Carriage’s acquisition of 8 per cent of Vinamilk for more than $900 million. 2018 is continuing this momentum, with the value of M&A deals in the first six months reaching $3.55 billion, a 155-per-cent increase on-year.

However, Vietnam’s M&A market is not just a story of large transactions and greater volumes, it is also enjoying greater depth and breadth than ever before. Last year, the number of deals reached close to an all-time high across a range of sectors, including consumer retail, infrastructure, real estate, and industry.

So what is driving this success? The pick-up in activity has been spurred in part by Vietnam’s favourable macro-economic backdrop. GDP growth reached 6.81 per cent in 2017 and we forecast 6.7 per cent growth for both this year and the next, making Vietnam one of the fastest-growing economies in the world. This strong economic performance is supported by Vietnam’s rapidly increasing middle class population, which Boston Consulting Group expects to double to 33 million by 2020.

Furthermore, opportunities are emerging from the many free trade agreements signed by the government, resulting in investors growing increasingly confident in investing in Vietnam, with the outlook remaining positive for 2018 and beyond.

Divestment dividend

Of course, one of the most important contributors to the increase in transaction volumes is the government’s ambitious equitisation programme of SOEs. Under the plan, the Vietnamese government is looking to sell stakes in more than 400 SOEs, both to increase fiscal revenue and to reduce government expenditure. The divestments offer the opportunity for investors to gain access to a more diverse range of sectors, such as construction and technology.

In addition to raising capital, these divestments are also accelerating the development of the M&A market and improving corporate governance in Vietnamese companies as the number of foreign investors increases. The rising foreign investment in Vietnam has likely contributed to its current place in the World Bank’s annual Ease of Doing Business report, in which it ranks 68th out of 190 countries. That is a jump of 14 places compared to 2017.

One objective of the government’s intention to liberalise the Vietnamese economy is to improve operational efficiencies among local corporations to meet international standards through the investments and growth plans of global companies. This has led to companies from other Southeast Asian countries offering high valuations for stakes in the Vietnamese subsidiaries of global groups, encouraging those international companies to monetise their assets. A notable outcome has been a rapid increase in the volume of Thai investment into Vietnam, with Thai companies particularly active in M&A deals in 2017.

HSBC has played a leading role in many of the biggest deals involving Thai investors. For example, we acted as the lead financial adviser to France’s Groupe Casino on its sale of Big C Vietnam to leading Thai conglomerate Central Group, for an enterprise value of $1.1 billion. We were also the exclusive financial adviser to Siam City Cement when it acquired a 65-per-cent stake in Lafarge Holcim’s operations in Vietnam. The deal had an enterprise value of $875 million and is the largest transaction ever conducted in Vietnam’s construction materials sector.

The power of partnerships

Despite the progress, there are still a number of challenges that investors face when buying assets in Vietnam.

It is important to be aware that the government has yet to settle on a standardised sales process for divestments as it continues to learn from successful and ongoing equitisations. This is in part because the government has different strategic goals and objectives for SOEs in various industries.

Investors should also ensure they are confident about the valuation of any proposed acquisition, as transactions in Vietnam do not always have the same level of information availability as in developed markets. Fortunately, the government is aware of investors’ concerns and is working to streamline the process, increase the availability of information, and reduce the regulatory burden on investors.

To facilitate local navigation and improve transaction certainty, several global investors have teamed up with local partners to pursue investments in Vietnam, a strategy which has contributed to the success of their acquisitions.

The fragmented nature of Vietnam’s banking market means that investors may also want to choose a bank that is well entrenched in the domestic market and can offer a full range of services.

Our long commitment to the Vietnamese market, combined with our comprehensive suite of banking services that includes M&A advisory, acquisition financing, and cash management and custody services, means HSBC is well positioned to meet the needs of investors – from preparation to acquisition and operation.

In addition, our deep understanding of the Vietnamese market means we are in the best place to help investors grasp the regulations and navigate the process of dealing with local stakeholders.

Confidence in success

Whatever the challenges, they do not detract from the clear opportunities available in Vietnam. The country offers one of the most dynamic and exciting markets for investments, an appeal that is recognised by investors every day.

This increasing confidence will ensure that MMA activity in Vietnam goes from strength to strength in the years to come.

Winfield Wong - Head of Wholesale Banking, HSBC Vietnam

VIR

MA to grow on after record 2017, vietnam economy, business news, vn news, vietnamnet bridge, english news, Vietnam news, news Vietnam, vietnamnet news, vn news, Vietnam net news, Vietnam latest news, Vietnam breaking news