Higher standards sought for M&A

13:00 | 15/08/2019
At the threshold of a new era for mergers and acquisitions, Vietnam is requiring a further push from both policymakers and businesses to ensure continued success of the booming market.
Sectors from education and banking to retail and real estate can be winners in M&A, Photo: Le Toan">higher standards sought for ma
Sectors from education and banking to retail and real estate can be winners in M&A, Photo: Le Toan

The last decade up to 2018 was a robust one for cross-border mergers and acquisitions (M&A) deals in Vietnam, with $50 billion worth of deals signed and investors all over Asia flocking into the fast-growing market via local partnerships. However, there are signs of a slowdown in action, as in the first half of 2019 deal value in Vietnam was only $1.9 billion – or half of the on-year figure.

At last week’s Vietnam M&A Forum 2019 held by VIR and AVM Vietnam, experts from various sectors, policymakers, and corporate leaders discussed the matter in depth, under the theme “Going for Breakthrough”. Three panel discussions touched on different aspects of M&A in Vietnam, but all strived to figure out the next driver of growth for the domestic M&A market.

“As we move towards the new era for M&A, there are opportunities from new trade deals and regulatory updates,” said Le Trong Minh, editor-in-chief of VIR and head of the Organising Committee as he opened the annual forum. “However, challenges also arise from both outside and inside Vietnam, including policy changes in major markets, legal bottlenecks, the size of Vietnam’s economy, and the process of equitising state-owned enterprises (SOEs).”

Following a successful sale of Vietnam’s leading brewer Sabeco’s shares to Thai Beverage at the cost of almost $5 billion, the market is now waiting for new offers and policies that can bring about other deals of this level, or even higher. Despite the general slowdown in the market earlier this year, there is also positive news: SK Group from South Korea spent almost $1 billion for a strategic stake in Vingroup, and fellow South Korean giant KEB Hana Bank closed a $822-million deal with one of Vietnam’s leading lenders BIDV.

Participants at the forum pointed out that after a decade of strong growth, Vietnam is no longer classified as “the new frontier” in the eyes of foreign investors, and more of them are already familiar with the vast potential of Vietnam’s market. What they need right now is policies that make it easier for overseas investors to enter the market, as well as a range of companies that have good growth prospects and reasonable levels of transparency.

Tamotsu Majima, senior director at RECOF Japan, said that Japanese investors remain very keen on Vietnam. However, they ask for high standards in corporate governance and discipline, as well as reliable data from Vietnamese sellers. Japanese investors also take a long time to study the potential target, which also calls for patience from the Vietnamese side.

Policymakers at the forum acknowledged the difficulties and said they are actively seeking input to open up the domestic capital market. Pham Hong Son, deputy chairman of the State Securities Commission (SSC), referred to the revised laws on Investment and Securities, which include forcing companies to list immediately after their initial public sale.

“We hope to pass our adjustments in the Law on Securities to the National Assembly in October,” said Son.

Other updates that investors can look forward to include the ability to deposit in foreign currencies, adoption of book-building methods for SOE sales, and clarity on the foreign ownership limit.

Experts believed that the M&A market this year is likely to stand between $6.8 billion and $7 billion in deal value. Sectors of interest are those that benefit from Vietnam’s emerging middle class, almost 100-million population, and rising consumption which range from consumer goods, retail, and real estate to telecommunications, pharmaceuticals, and education.

“We can also expect a rise in M&A in the banking sector, as Vietnam enters a new restructuring era for commercial banks. Vietnamese lenders are also looking for new capital in order to satisfy the strict requirements of Basel II,” said Le Manh Hung, CEO of Vietcombank Securities.

According to the broker, Vietnamese banks are also becoming savvier in the way they approach investors – they now look for both strategic and financial shareholders as well as bond buyers.

This year’s Vietnam M&A Forum also highlighted the rising role of professional advisors in any deal, including lawyers, evaluators, consultants, auditors, and risk managers. The general consensus is that advisors should provide highly specialised service and work in tandem in order to bring the seller and the buyer closer. With a new generation of M&A deals, advisory in Vietnam will also have to become more sophisticated.

The view was confirmed by policymakers. “In order to develop Vietnam’s financial market in general and the M&A market in particular, we welcome advisors, consultants, and investment funds from overseas. They bring a wealth of experience and networks to Vietnam and help M&A transactions here,” said Son from the SSC.

Meanwhile, Dang Quyet Tien, head of the Corporate Finance Department from the Ministry of Finance (MoF), said that international advisors can tell Vietnamese regulators how to improve access to the global capital market and how to attract more high-quality investors.

“We need international advisors and evaluators in high-profile M&A deals in the future, because this builds our credibility. This is especially important for very specific companies such as MobiFone,” said Tien.

The need for experienced advisors was also highlighted by Andy Ho, chief investment officer of VinaCapital. According to Ho, in order to have a successful M&A deal in Vietnam, foreign investors must employ a good team of advisors. This is what VinaCapital learned after completing 200 M&A deals in the country.

“In many cases, investors chose advisors that are their personal friends. This is very dangerous and can derail a deal. It is best to hire experienced consultants and ask to see their most recent five deals,” said Ho. “Not stopping there, investors and sellers should also seek advisors that can offer industry-specific assistance – not just businesses that have operations in many sectors.”

This view is shared by Ben Gray, director of Capital Markets at Cushman & Wakefield. He noted that many M&A transactions in Vietnam are becoming international but still mired in legal difficulties. This is why buyers should have a strong team of advisors who can help them overcome these challenges.

“Negotiations and persuasion take a long time in any M&A deal. To make this process as seamless as possible, buyers should choose the suitable advisor and understand them very well,” said Gray.

Vu Dai Thang - Deputy Minister of Planning and Investment

higher standards sought for ma

M&A is an important channel for attracting investment capital in the coming time. The Vietnamese government will revise and add policies to push up M&A activities.

Over the years, thanks to the government’s continuous efforts on improving the investment and business environment, and the positive response from the business community and the people, Vietnam has gained encouraging social and economic achievements. Those achievements were shown by the GDP’s high level, the stable macroeconomy, and controllable inflation, as well as positive foreign investment, an increase of newly-established domestic enterprises, and the growing domestic private business community.

Moreover, Vietnam has been actively integrated into the regional and global economy through a series of bilateral and multilateral free trade agreements. These help the country open up larger markets for import and export, increase investment capital into the country, promote national production, and improve the nation’s competitiveness.

In particular, the government has continued to restructure the economy by renovating the growth format towards improving efficiency and competitiveness, highly focusing on restructuring public investments, as well as the financial and banking systems and state-owned enterprises.

For small- and medium-sized enterprises, there have been many solutions to push up equitisation and sell shares in enterprises where the state does not need to hold dominant shares, including those that are doing business effectively. Since 2016, more than VND200 trillion ($8.7 billion) was diverted from equitisation processes.

Along with that, the private sector has been identified as the motivation of the whole economy. The government, therefore, has also accelerated the completion of mechanisms and policies to improve the business environment for non-state sectors. The related laws have been revised and improved to eliminate overlapping and reduce costs for businesses. To achieve a true breakthrough in the M&A market, there should be stronger changes from the process of promulgating and enforcing policies to the implementation with innovation from buyers and sellers.

Masahiro Kotaka - Managing director, KPMG Japan

higher standards sought for ma

Transparency is highly valued by investors, and buyers will study market data and potential partners very carefully before making the next step, which is especially true for Japanese investors. They need to have a vision for post-merger and integration three to five years after the deal, which can be difficult unless there are in-depth dialogues between the partners. This will lay down the foundation for successful M&A, contributing to successful post-merger operations and integration.

Challenges after any M&A would begin when two sides decide to fix a transaction. If a Japanese company invests in a Vietnamese company, it is not a simple combination of two companies, but a fully new subject which can foster synergies of the advantages and strengths of the two sides in one body. Apart from investment capital, Japanese investors pay much interest in the management capacity of our partners. When we give advice to our customers, we require them to be able to answer the main questions, such as “What is the vision after three or five years?” Regretfully, not many Vietnamese companies can satisfy this very important question. They cannot imagine what they will be after M&A. This problem should be sorted out.

Andrew D. Kim - Manager Global M&A Center, KOTRA

higher standards sought for ma

South Korean investors are very active in Vietnam’s M&A market. They are keen on real estate, manufacturing, and heavy industry ­sectors. South Korean buyers are increasingly shifting their focus on infrastructure, utility, services, and consumer goods sectors.

In recent years, South Korean companies have placed their focus on the banking and finance sector in Vietnam. In addition to large corporations, South Korea’s small- and medium-sized enterprises (SMEs) have also expressed enthusiasm in these fields with a large number of transactions, despite rather low values.

In the first half of 2019, South Korean companies, namely SK and KEB Hana Bank, have made two high-profile deals in Vietnam worth over $1.8 billion. ­Before these transactions, several South Korean ­companies have already ramped up presence in ­Vietnam, such as Shinhan Bank’s purchase of Prudential Finance and Lotte Card’s buyout of Techcombank ­Finance.

Michael Han - Chief representative, SK Vietnam

higher standards sought for ma

Vietnam is a great place to invest in from South Korea’s perspective. It is amazing how similar Korean people are to Vietnamese, respecting the elderly and prioritising children’s education. When you have that kind of common ground, making investments becomes much easier. We may have different languages, but we think alike.

After our $470 million investment in Masan Group last year, we invested $1 ­billion in Vingroup this year. Are we done yet? Unlikely. We have set up our local ­office for the process of ­recruiting local people. By the end of this year, we are going to look for ­further investment opportunities in Vietnam. We will look at both small and large companies out there, as long as the investment brings value to us.

We have a very prudent investment strategy. One key is that our partners have to be very capable. They need to be a group of people that we are comfortable working with because we are not a silent investor who makes investments, stays quiet and hopes that share prices will go up. We want to work with the management and the founder of each business so that we can create value for shareholders, employees, and more Vietnamese customers.

We are working together with Vingroup to bring new business ideas and concepts to Vietnam. We are already very comfortable with these ideas in South Korea and want to see how these ideas will work in Vietnam.

Andy Ho - Chief investment official, VinaCapital

higher standards sought for ma

We are interested in all sectors that can benefit local people as well as promote the Vietnamese economy and exports, having carried out more than 200 M&A transactions in Vietnam. To conduct successful M&A deals, investors should be very careful in choosing the consultant. Chosen consultants must be able to show off at least five successful deals which they have made in the same sector. I have seen many deals fail because the consultant was not picked appropriately.

In general, the three sectors which will draw the most interest from investors in the coming time are healthcare, food and beverages, and real estate.

By Nam Phuong

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