Barely halfway through 2015, Vietnam has already witnessed a series of alliances and acquisitions involving large domestic names like the Vingroup, the Masan Group, the Pan Pacific; as well as international players from sectors like retail, insurance, telecommunications and legal service.
Following the trend witnessed last year, the consolidation and expansion of business, marked by the furious pace of merger and acquisition (M&A) activities, is expected to continue throughout the rest of the year – across all sectors.
Mega deals in the big picture
A report from the local financial information portal StoxPlus recorded 265 completed M&A deals in 2014, with value totalling $4.66 billion, an increase of 33.1 per cent from 2013.
The figure did not take into account a major real estate project, the Vung Ro Resort by the Rockefeller family-backed Rose Rock Group and Vung Ro Petroleum Ltd, with a total investment of $2.5 billion, as the disbursement for the project is still unclear. Counting this project, the total M&A deal value in 2014 could reach $7.16 billion.
The big jump was due to the several mega deals, which StoxPlus calculated at some $2.44 billion. Such deals are likely to include – food firm Kinh Do purchasing PhinDeli (undisclosed) and Vocarimex ($15 million), while selling its baked goods unit to Mondelèz International ($370 million), SapuraKencana Energy (Malaysia) acquiring two oil blocks in Cuu Long Basil, Siam Cement Group taking over Prime Group ($228 million), Standard Chartered Private Equity buying a majority stake in An Giang Plant Protection for $90 million, Pilmico Philippines acquiring 70 per cent in food processor Vinh Hoan 1 for $28 million, and Bien Hoa Sugar and Ninh Hoa Sugar merger ($58 million).
There were undisclosed value deals last year, such as the Vingroup’s takeover of Ocean Retail, Power Buy acquiring 49 per cent of Vietnamese electronics retailer Nguyen Kim, and FPT Software takeover of RWE Slovakia.
Also read: Thai Central Group acquires VN’s Nguyen Kim
The most talked about deal was the $879 million M&A between Berli Jucker Public Company Limited and Metro Cash & Carry Vietnam. However, the attempt was aborted as the Thai company’s shareholders rejected the offer.
Thailand-based investors led the inbound investment trend in 2014, and Thai interest is expected to increase in the coming years.
Inbound M&A into Vietnam totalled more than $3 billion in the year, a big leap of 64.9 per cent as compared to only $1.83 billion in 2013. This proved that the foreign players had regained confidence and interest in the Vietnam market.
Also read: AEC Effect: Thailand cos foray into Vietnam
US investors ranked second in terms of deal value, with 7 deals worth $498.6 million.
Sector appetite of foreign investors saw little change, still focusing on consumers-oriented sectors (food and beverage, retail, real estate), and oil and gas. “Foreign investors still find it attractive to take advantage of the big consumer base in Vietnam, and this theme will likely to continue in the coming years. Meanwhile, oil and gas acquisitions mostly happen at the upstream, where foreign companies acquire oil blocks within Vietnam’s water territory, as local companies are still limited in their oil exploitation capabilities,” the StoxPlus report wrote.
Bolstered by law and incentives
More M&As are expected to come to Vietnam, following the effectiveness of the amended investment law from July. The law will free the foreign companies from adhering to the lengthy investment certificate procedures when buying stake in Vietnamese firms.
Under current law, Vietnam has different licensing procedures for foreign and domestic investors. The investment certificate serves as business registration for foreign investors. “In practice, despite a 45 day maximum statutory time limit, the investment certificate process can take four to six months or longer,” officials from law firm Duane Morris Vietnam LLC stated.
“The new investment law expressly provides that no investment registration certificates will be required for acquisitions of target companies. As a result, the time needed to complete purchase of stakes in Vietnamese entities is expected to be reduced tremendously,” the law firm commented.
Buying into public companies listed on the Vietnamese stock exchanges will not require the certificate either, but foreign ownership of listed companies is still capped at 49 per cent. Local authorities are still working to lift the caps. “Until that day, investors will need to buy unlisted companies to take control.”
In addition, the M&A scene will also be fostered by a number of international trade agreements, which will accelerate investment flow into the country. Most typical are the following three agreements.
The Trans-Pacific partnership (TPP)
TPP is a giant free trade area deal of 12 countries including US, Canada, Mexico, Peru, Chile, New Zealand, Australia, Malaysia, Singapore, Vietnam, Brunei and Japan. It is expected to eliminate tariffs on goods and services, tear down a host of non-tariff barriers and harmonize all sorts of regulations
According to the Vietnam Ministry of Planning and Investment, foreign direct investment (FDI) from TPP countries has made up 50 per cent of the total FDI into Vietnam. As Vietnam joins the negotiation, it will significantly increase investment capital flow in supporting industries, value added services and the technology sector, due to the free investment rule regulated by the agreement. The sectors which Vietnam has competitive advantages shall witness acceleration of M&A.
The ASEAN Free Trade Area (AFTA)
AFTA is a free trade area agreement, which will help in reduction and elimination of tariffs for items and sensitive agricultural products, of the member countries in South East Asia.
With the elimination of tariffs within ASEAN, trading within the community will be considered “local trading”. Given the consumption growth potential of Vietnam, FDI from ASEAN countries and inbound M&A in agricultural productions, retails and services are expected to increase
For example, 2014 marked a year of emerging Thai inbound M&A into Vietnam.
The Vietnam – Korean Free Trade Agreement (VKFTA)
The VKFTA, signed on May 5, removes import tariffs of over 90 per cent of all products traded between Vietnam and Korea.
Currently Korea is the biggest FDI investor into Vietnam. The FTA is expected to triple bilateral
trade between two countries up to $70 billion by 2020, indirectly supporting growth of inbound and outbound M&A between the two countries.