VietNamNet Bridge – Mergers and acquisitions are expected to pick up pace this year despite a slow start to the year, mainly thanks to the increasing interest of foreign investors.

The annual M&A forum, organised by VIR, allured great interest of foreign business people.

Statistics from Stoxplus Joint Stock Company, a domestic firm specialising in supplying information on the stock market and business environment, showed that 14 merger and acquisition (M&A) deals were announced in the first half of this year worth $676 million.

In the second quarter, the market witnessed two additional M&A deals, including Singapore Chandler Corporation’s acquisition of an 80 per cent shareholding in Hoan My Hospital of India’s Fortis Healthcare, and a $200 million investment from a consortium led by an affiliate of private equity firm Warburg Pincus to acquire a 20 per cent stake in Vingroup’s retail business.

However, the value of M&A deals in the first half of this year declined against same period of 2012. According to Stoxplus, the value of M&A deals in the first quarter of 2012 alone reached $1.5 billion.

But this slow start has not eroded confidence among experts about the potential growth of M&A activities in Vietnam.

“From now until the year’s end and next year, the M&A market will be busier because of an increase of foreign investment in Vietnam through this channel,” said Nguyen Quang Thuan, general director of Stoxplus.

Baker & McKenzie, in a survey on M&A trends conducted early this year, also pointed out Vietnam provides a “considerable opportunity, even as growth decelerates.”

Over the past five years, total value of M&A deals is estimated to have reached $14.8 billion, with an average growth rate of 65 per cent per year, underlining the strong growth of the country’s M&A market.

“The M&A market in Vietnam will further develop, despite the current difficulties facing the economy,” said Chris Freund, managing partner of private equity firm Mekong Capital.

Freund believed M&A activities would increase sharply as Vietnam continued to more deeply penetrate the global economy through participation in the Trans-Pacific Partnership (TPP) agreement which is expected to lure more foreign investment into the country.

Foreign players lead the trend

While many Vietnamese companies are struggling with economic challenges like non-performing loans, weak management skills and restructuring pressures, foreign companies continue to lead M&A activities in Vietnam.

In the first half of this year, ten of 14 M&A deals involved foreign companies, proving an increasing trend of foreign investment into Vietnam through cross-border M&As, according to Stoxplus.

Some typical M&A cases in the first quarter included the American-based KKR investment fund, which raised its ownership in Masan Consumer from 10 to 18 per cent, with additional value of $200 million. Chandler Corporation invested in Hoan My Hospital and Warburg Pincus invested in Vingroup.

Lotte Hotels & Resort recently concluded a deal to buy a controlling stake in the Legend Hotel in Ho Chi Minh City. While a Korean firm was also reported to have acquired Gemadept Tower from Gemadept at price of $45 million.

Nguyen Phuc Hao, associate director of corporate finance at Viet Capital Securities Company, said foreign investors could enjoy many investment opportunities which could be achieved at lower cost than previously as a result of economic downturn.

“In addition, the regulatory framework in Vietnam has improved significantly thanks to government policies and this will act as a catalyst for the proliferation of M&A activities in Vietnam. That’s why we’re seeing so much more investment activity through M&As at this time,” said Hao.

M&As focus on specific sectors

According to Stoxplus, the banking sector will be more vibrant in the coming years with the restructuring roadmap for this sector likely to provide the catalyst for increased M&A activities. The number of commercial banks will be reduced from 39 to 13-15 in 2017.

Among the current 39 joint stock commercial banks, 15 have strategic partners in the same sector and three banks have remained under special supervision or have less demand for merger or transfer. Therefore, M&As will be increasingly common in the future, said the report.

Real estate is likely to also see a rash of M&As, as developers creak under restructuring pressures caused by a moribund market.

“M&A deals in the real estate sector are predicted to thrive in 2013. Many real estate developers faced financial difficulties and were forced to transfer their projects, creating investment opportunities for those buyers who have long-term strategies,” Grant Thornton Vietnam, an accounting company and business consultancy, said in a note released last month.

While the real estate and financial service industries are expecting to see more M&A transactions in the future, analysts of the consumer goods and fast-moving consumer goods (FMCG) sectors believe these markets remain extremely attractive to foreign investors given demographic factors, including a large young population eager to follow international trends.

“Moreover, the FMCG sector is a principal source of acquisition targets as it is one of the few sectors in which strong local brands have been developed over the past 10-15 years which still remain privately held,” Baker & McKenzie noted in the survey.

Freund at Mekong Capital also said his company would mainly focus on consumer-driven business as a strategy of the firm in the coming years.

“Consumer product businesses are growing very fast right now. If you look at other companies like Vinamilk and Massan Foods, they are still growing very well,” said Freund.

Source: VIR