Vietnam Set to See More Mergers, Acquisitions as Reforms Continue

M&A activities could be seen both as a consequence and tool to facilitate the country’s economic restructuring, said Phong.

However, an increase in M&A activities and success in this area depends very much on the speed of continued equitation of state businesses, market openness for foreign investors and pressure on local businesses to repay debts, he said. In addition, the Government’s plans on restructuring the economy would also influence the M&A trend to come.

Phong said there were two main trends in M&A activities in the Vietnamese market. The first one was acquisition between large foreign and domestic companies to create strategic partnerships that would benefit both sides in the market. The second trend includes buying stakes from loss-making companies or near bankrupt businesses to make them become investors’ affiliated companies.

According to a report released last month, the total value of merger and acquisition deals in Vietnam reached US$1.5 billion in the first quarter of this year.

Foreign investors were especially interested in acquisition of joint ventures and of wholly foreign-invested companies such as Unilever Vietnam Joint Venture Company, which bought a 33 per cent stakes in its local partner the Vietnam National Chemical Corporation to become a wholly foreign-invested company in 2009.

M&A activities seeing the most involvement from foreign investors were in the areas of banking and finance, real estate, stocks and retail sales in the country’s two biggest cities of Ho Chi Minh City and Hanoi, said Phong.

Last year, M&A drew the strong participation of foreign investors (both multinational corporations and private equity funds), making up 83 per cent of the total M&A deals in Vietnam, in which most of the foreign capital come from Japanese investors.

Last year, two foreign banks BNP Paribas and Maybank became strategic partners of Phuong Dong Bank and An Binh Bank respectively, with BNP Paribas’s stake in Phuong Dong Bank reaching 15 per cent, while Maybank’s stake in An Binh Bank was at 20 per cent.

Vietnamese businesses were not limited to M&A activities at home, but also saw growing action abroad.

Viettel, was the first Vietnamese telecom business to invest oversea. The business also has plans to buy stakes in mobile coverage networks in Asia, Africa and Latin-America.

However, Phong said that many Vietnamese businesses lacked comprehensive understanding of M&A activities and were inexperienced in evaluating the assets of companies, meanwhile some M&A deals in Vietnam had revealed unhealthy competitiveness and issues related to market speculation.

M&A activities in Vietnam grew on average 30 per cent per year in recent years, having become a remarkable investment channel for both local and foreign enterprises, according to a report released last month. It also forecasted that M&A activity would grow at over 30 per cent per year in the coming time, with consumer goods, banking and finance and real estate forecast to continue to be the most attractive sectors.

Controlling M&A activity was very important to facilitating business expansion, production and restructuring as well as to prevent the creation of monopolies in the market.

Phong said an incomplete legal framework had remained the biggest obstacle for M&A activity in Vietnam.

Legal and governance barriers along with macro instability and the lack of market transparency were still the greatest concerns for investors, he said.