Vietnam, among the most resilient countries in Southeast Asia to report domestic economic activity resuming to the pre-pandemic level, is expected to see investment flows bouncing back as well as the market represents solid opportunities at a fair valuation, according to top private equity leaders speaking at the Asia PE-VC Summit 2020.
“The opportunity [in the country] is as good as ever,” said Chris Freund, partner at Mekong Capital, at the ‘Vietnam: SE Asia’s most resilient and compelling story?’ panel.
This year, excluding the $650-million investment in Vingroup’s real estate arm Vinhomes, the total recorded private equity (PE) transaction value into the market accounted for less than a quarter of last year’s disclosed $770 million value, according to DealStreetAsia’s data. Deal volume nearly halved to 9 investments.
While travel restrictions have been cited as the main challenge to deal-making and hence a tepid deal flow, Vinacapital chief investment officer Andy Ho said, the firm still had a robust pipeline.
“We have closed a couple of deals this year and expect to close a couple more before the end of the year,” he said.
Freund added: “Anytime that we’re not in a bubble, it’s a good time to deploy capital in Vietnam. We’re not in a bubble right now, and it’s really not very competitive.”
He asserted that valuations for Vietnamese businesses were “reasonable and fair” relative to their growth rates.
Meanwhile, PE assets are outperforming public indexes, said Ho, whose firm also invests in the local stock market. “If you look at EPS growth, for example, the general public market has a negative EPS growth in 2020 over 2019, about negative 5-10 per cent. But when you look at the PE portfolio, you can see EPS grow 10 to 20 per cent.”
And the opportunities are not just limited to local investors. Foreign investors could de-risk their investments by having partnerships with local operators and platforms, said Niraan De Silva, managing director and executive board member of VNLIFE, the parent firm of Softbank Vision Fund-backed payment company VNPAY.
“Smart GPs would partner with folks on the ground. The reality is, if one of us here has rejected the deal, that should tell you something,” Ho echoed his co-panelist.
Invest in the right models
The COVID-19 pandemic has also brought about a shift as investors are more focused on the right business model and unit economics.
De Silva said technology businesses should not be viewed purely as a tech model. “To scale technology nationwide and to achieve critical mass, it takes a partnership between technology and traditional businesses,” he observed.
“And we are still at the early days of digital adoption,” he added.
VinaCapital, which counts healthcare among its focus areas, is looking at emerging themes like centralising diagnostics for hospitals and home delivery of pharma products and other services.
For Mekong Capital, Freund has a different approach.
“It’s not our forte to predict innovative business models. Rather, we’re looking for proven business models where it’s all about leadership and excellence in management,” he said.
“For example, there are a lot of precedents of successful large pharmacy retail chains around the world. We saw an opportunity to execute well, and want to make Pharmacity the number one company in Vietnam in that space, which is what the company has achieved.”
Mekong Capital invested in Pharmacity in 2019 when the company had nearly 190 stores and the chain has grown to more than 500 stores today.
In addition to traditional pipelines, the COVID-19 pandemic has also thrown up a good set of opportunities in distressed investments, according to VinaCapital’s Ho.
While the firm has been investing a lot in consumer staples, real estate, hospitality and manufacturing, Ho sees opportunities for distressed assets across all basic sectors that are contributing to the local economy.
“If you’re going to invest in distressed assets, you have to be on the ground and understanding the issues that need to be resolved,” he said.