A research team for the annual M&A Vietnam Forum, to take place in June with Vietnam Investment Review (VIR) the organiser, puts Vietnam’s foreign-related M&A activities and prospects in 2012 under the microscope.
Cross-border mergers and acquisitions activities are valued at thousands of billions of dollars annually and create conditions for investors to access their target markets very quickly.
In Vietnam, figures from mergers and acquisitions (M&A) research organisations including Thomson Reuters, IMAA and AVM Vietnam show that the total value of M&A deals in Vietnam last year reached nearly US$4 billion, an impressive step up from the 2010 figure of US$1.7 billion. Of this, over $2.6 billion originated from deals involving foreign investors.
Thus, M&A in general and foreign-related M&A in particular, have played an important role in Vietnam’s investment activities. This presentation will deal with prominent characteristics of Vietnam-based foreign-related M&A activities, and provide a forecast for M&A while giving future recommendations.
Characteristics and trends
Foreign-related deals made up 66 per cent of the value and 77 per cent of the quantity of the total value of US$4 billion of Vietnam’s M&A deals last year. The highest profile deals in 2011 included Russian VimpelCom increasing its ownership rate in the joint venture Gtel-Mobile to 49 per cent, IFC purchasing a 10 per cent stake in Vietinbank, Mizuho purchasing a strategic holding in Vietcombank, and Carlsberg buying out Hue Brewery Company to become the sole owner of that firm.
The main reason for the rise in the foreign-related M&A deals in Vietnam is that foreign investors have realized that there are more favourable investment opportunities in purchasing local firms than directly investing in the country. Besides, in 2011, deals related to selection of strategic investors were also realized.
Financing, consumption and property as foreign investors’ targets
Foreign investors had their eyes glued on the consumer goods, banking and property sectors for M&A deals concluded in 2011.
The consumer goods sector saw the most attractive growth, with a total value of US$1 billion in M&A deals, occupying 25 per cent of total value of all deals in Vietnam last year. Large deals coupled with purchasing of dominant stakes have demonstrated a trend in which foreign investors are expanding their value chains and markets via M&A. Deals such as the Unicharm - Diana, Marico - ICP and Carlsberg – Hue Brewery are emblematic.
The financing-banking sector has also been of interest to foreign investors. The Mizuho - Vietcombank, IFC - Vietinbank and PVI - Talanx deals show that foreign investors still want to become strategic investors in large local equitised financial organizations.
As for the property sector, it was a difficult 2011 that fuelled property-related M&A activities, with the total value of deals estimated to be US$250 million.
Japan’s investment trend
Last year, Japanese groups contributed the largest amount of cash to Vietnam’s M&A market, with the deals involving these groups totalling $596 million. Japanese investors tended to pour their cash into the consumer goods and financial sectors, which have witnessed high growth over the past few years and are also the investment targets of many foreign financial institutions.
The most typical deal in the financial sector was Vietcombank’s sale of a 15 per cent stake to Mizuho. This was the second time that a Japanese bank had become a strategic stakeholder of a Vietnamese bank. The first involved Sumitomo Mitsui Banking Corporation’s purchase of a 15 per cent stake from Eximbank.
Meanwhile, the consumer goods sector saw Unicharm purchasing a 95 per cent stake from Diana, with the total value of the deal estimated to be $129 million. The sector also saw Kirin Holding purchasing a dominant stake from Interfood (IFS), Daio Paper buying a holding from Saigon Paper, and Glico buying 10.5 per cent of Kinh Do Company.
Assessment and forecast
As with attracting foreign direct investment, the most important factor for luring foreign investors into M&A in Vietnam is a stable macroeconomic climate. It is also necessary to put in place legal regulations that are in line with international practices.
Vietnam’s restructuring of state-owned enterprises is also important to coax more foreign direct investment via M&A activities. Thus the government needs to accelerate equitisation of large state-owned enterprises operating in the sectors coveted by foreign investors.
As for local companies, the lack in transparency in corporate governance and weak cooperative culture are bottlenecks in attracting foreign investors. Thus local companies need to renew themselves to make themselves more attractive to foreign investors. Vietnam’s M&A growth rate over the past five years has been 30 per cent on average. Thus we believe that this rate will continue to exceed 30 per cent annually in future.
Foreign-related M&A activities will continue to play an important role in the growth of M&A deals in Vietnam. Fuelled by the government’s restructuring of state-owned enterprises, more large M&A deals can be expected. This is especially true for deals to select foreign strategic partners in large equitised state-owned enterprises like Mobifone and VNSteel.
A survey conducted in preparation for an M&A Vietnam forum last June in Ho Chi Minh City revealed some 65 per cent of surveyed foreign investors said they were interested in M&A opportunities in Vietnam and would come to the country to hunt out these opportunities. This shows Vietnam can expect more high value foreign-related M&A deals this year.