Vietnam Mergers & Acquisitions NEWS

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Mergers and Acquisitions (M&A) has recently become one of the hottest issues in Viet Nam, notably in the face of the economic downturn. Local enterprises are seeing many difficulties at the moment, and are lacking advanced technologies, financial resources, world-class experiences and qualified workers. M&A activities with foreign partners is regarded as a quick and effective way to bail out firms. Viet Nam News reporter Tran Phuong Hoa spoke with Ewan Patrick, director of financial advisory services for Deloitte Viet Nam in Ha Noi on Tuesday.

Do you think the economic downturn is the reason for the M&A boom in Viet Nam?

Yes. From my own perspective, things have been very busy since Tet (lunar New Year). Generally, the M&A global market has been very quiet since late 2008. However, the M&A market in Viet Nam was considerably more active than in some neighbouring countries, such as Thailand and Malaysia. The downturn will create many opportunities for M&A in Viet Nam. The primary reason for these opportunities is that the expectations of local enterprises have been considerably reduced, thus evening out buyers and sellers, making the market more realistic than it was in 2006 and 2007.

This will drive the overall volumes and values of transactions for M&A, which will ultimately benefit the Vietnamese economy.

Which sectors are promising for foreigners interested in M&A in Viet Nam?

Right now we’re seeing a lot of interest in telecommunications, such as the privatisation of MobiFone and VinaFone.

Within Deloitte, we’ve done a lot of work on oil, gas and financial services. Oil and gas is a very important sector for the Vietnamese economy overall, and I think the construction of refineries and the utilisation of more advanced technologies will be very positive for Viet Nam.

Within financial services, we’ve seen interest in non-life insurance. For the banking sector, a number of Vietnamese banks are excessive, so we’ll probably need to see a reduction in the number of commercial banks, down to about 10 or 15.

What’s your advice for Vietnamese companies to avoid under-evaluation of their stake?

Company asset evaluation is a very interesting topic in Viet Nam. Historically, Viet Nam has considered evaluation from a historical net asset value prospective, but actually, in any M&A market, an asset is only worth the price at which a buyer is willing to purchase it.

For example, US$100 million could have been invested in a factory to produce cassettes; however, since music consumers no longer want to purchase cassettes, it’s very unlikely that a buyer would pay $100 million for the factory.

To protect the value on the sell-side, there are a number of techniques that can be used. From a foreign investor’s standpoint, the evaluation of a Vietnamese firms’ investment potential should be based on expected future earnings.

Potential investors like to consider investment opportunities with certainties attached, by bringing themselves to the market in a structured manner, with reliable financial information, solid investment rationale and secure project licensing.

Greater interest will be obtained from potential investors, as they will see an ability to complete a transaction within a shorter period of time.

How can the buyer and seller balance their mutual benefits in business?

Before the investment is completed, the buyer should sit down and negotiate with the seller and reach agreement, a specific action plan is essential to maximise your chances of a mutually beneficial relationship.

For example, within the banking sector in Viet Nam, we have seen a fair amount of investments completed within the last few years, but the post-investment returns have not always been as high as expected.

Reasons for this may be that post-investment action plans covering product development, technology roll-outs and other things were not made in sufficient detail. Equal buy-ins were not obtained from buyers and sellers.

Does Deloitte conduct surveys on M&A in Viet Nam?

Deloitte has conducted a number of M&A investment surveys on a regional and global basis. As M&A in Viet Nam is relatively new, we tend to focus on regional trends to give sufficient volumes to analyse.

Conducting this research within Southeast Asia provides some very interesting results, which allow us to benchmark Viet Nam relative to the trends we see in Thailand, Malaysia or Singapore.

This also lets us consider how the M&A market in Viet Nam may evolve. There is an increasing volume of reliable information on M&A in Viet Nam, but we’re coming from a very low starting point. I think this trend will continue as we continue to see M&A in Viet Nam getting more focus, and both local and international groups collecting and disseminating more data. — VNS

More firms are considering taking the mergers and acquisitions route to fresh investment opportunities amid the sagging markets.

Joining hands is often the best way to grab business success

Le Minh Thanh, head of An Binh Securities Joint Stock Company’s private equity division, said there were many opportunities for investors to undertake mergers and acquisitions (M&As) in Vietnam.

“When the economy slows down, many enterprises struggle with financial difficulties and a narrowed market. They need financial support to survive,” he said.
According to the Vietnam Chamber of Commerce and Industry, there are more than 300,000 enterprises operating in Vietnam, of which about 95 per cent are small- or medium-sized.

In 2008, those enterprises experienced high inflation and struggled with financial difficulties as the government tightened its monetary policy to help rein in inflation. The global recession has also negatively impacted on local exports, resulting in a downgrade in Vietnam’s economic growth in the first quarter of this year to 3.1 per cent, compared with the 6.5 per cent recorded in the same period last year.

Nguyen Bich Dat, Vice Minister of Planning and Investment, estimated that around 30 to 50 per cent of Vietnamese enterprises would be driven to merge with other partners in the next five to 10 years due to the economic slowdown. The trend seems to have already begun as M&As have become more prevalent in Vietnam recently.

Thanh said foreign investors were choosing to enter the Vietnamese economy through M&As because they provided one of the fastest points of entry.
The sector seeing the greatest amount of M&As is the banking sector. Over the past few years, Australian ANZ Banking Group, HSBC, MayBank and Morgan Stanley have bought stakes in domestic banks.

Early this year, Vietnam Banks Association urged the government to issue regulations on M&As in the banking sector, permitting domestic banks to merge with other sectors in the case of bankruptcy due to the economic slowdown.

Luong Dinh Quang, chairman of Saigon Thuong Tin Investment Company, said Vietnamese companies were more familiar with M&As and had begun to see them as a fast way to enhance their market competitiveness. Another factor pushing M&A activities in Vietnam is the equitisation process of state-owned enterprises (SOEs), permitting private investors to buy stakes in those enterprises.

Nguyen Xuan Phong, business development director of Samsung C&T Corporation Hanoi Office, said his company was seeking M&A opportunities in the country, especially in SOEs. “Many large SOEs were on the roadmap for equitisation and would be good choices for investors looking to enter or solidify their market footing.” (VIR)

HANOI- Vietnamese policymakers should not be much concerned about mergers and acquisitions (M&A) which are just part of corporate life, legal experts said.

“The emergence of M&A has raised the question if it leads to take-over of local companies or monopoly,” said Pham Manh Dung, general director of the Department of Legislation under the Ministry of Planning and Investment (MPI).

Speaking at on Thursday’s M&A Vietnam 2009 conference, Dung assured local lawmakers that so far, M&A in Vietnam had been done for the sake of healthy growth. “The government should look at M&A as a normal sign of progress.”

In recent years, with the enactment of a body of laws to better govern enterprises and investments, M&A had gathered force here.

Most cases have taken place in the financial sector, which is still in its nascent stage of development and thus has enormous growth potential for investors.

Foreign financial companies have resorted to M&A of local ones as a way to enter the market which is yet to be fully open to them.

According to Pricewaterhouse-Coopers, the number of M&A cases jumped from 18 in 2005 with a total value of US$61 million to 93 cases in 2007, valued at over US$1.7 billion.

The economic crisis caused a decline in 2008, but the figures were still high with 38 cases worth US$346 million.
Major deals included Daiichi buying 100% of life insurance company Bao Minh CMG, AZN acquiring stakes of Sacombank and securities firm SSI, HSBC investing in Techcombank, and Dragon Capital in Vinamilk.

But critics say the legal framework has yet to address the complexities of these activities, and still poses many barriers to foreign investors.

“To put it bluntly, the biggest concern for foreign investors is that they aren’t allowed to buy as much as they want to,” said Dominic Scriven, managing director of Dragon Capital.

Under Vietnamese laws, foreigners cannot own more than 30 % of a Vietnamese bank, or 49 % of a non-bank public company. The laws do not set a limit on foreign ownership of non-public companies in most cases.

But Tran Anh Duc, head of law firm Vilaf Hong Duc, said that in practice, a transfer of 99% of non-public companies might be questioned by authorities, and a transfer of 100% of these companies was still subjected to complicated approval procedures.

Duc said onerous procedures were actually a great concern for foreign investors. M&A registration that was processed in weeks elsewhere could take months here in the country.

In a survey presented at the conference by Grant Thornton, cumbersome processes and red tape outdid the legal system as the number one hurdle to investments in Vietnam.

Lower on the list were infrastructure, corruption and currency controls. (SaiGon Times)