Vietnam: High growth & young talent is luring bigger private equity investors

International and local private equity funds are betting on Vietnam’s high growth and young talent, and are pouring more money into the country’s companies.

The majority of private equity funds present in Vietnam used to buy listed stocks. But lately, there has been a new wave of PE funding, which in turn is boosting the country’s growth rate, currently at a five-year high of 6.7 per cent, according to Grant Thorton’s latest PE report.

The recovery of the economy has provided further investment opportunities for PE firms. Those positive possibilities can be seen in improved consumers’ and investors’ confidence, which will potentially lead to more capital inflows.

The report forecasts domestic PE funds to be a major force in competing for deals. In 2014, whilst all large scale transactions had foreign buyers, approximately 65 per cent number of transactions were conducted by domestic funds and enterprises.

VinaCapital, Mekong Capital, Saigon Asset Management, PENM Partners or Vietnam Investment Group are the prominent domestic players.

VinaCapital, the fund management company with a heavy focus on real estate, has helped IDP become a top 5 manufacturer of dairy products in Vietnam; and Quang Ngai Sugar gain 85 per cent market share in Vietnam bottled soymilk market.

Historically, in VinaCapital’s private equity portfolio, larger deals have provided higher returns. Its top 10 exits (in a total of 35 exited investments) account for 30 per cent of invested capital but represent 54 per cent of the total exit proceeds.

Mekong Capital, a Vietnam-focused private equity firm, came to the fore with a nine-fold return from restaurant chain operator Golden Gate Group‘s divestment and 22x return on partial exit from Mobile World.

Saigon Asset Management has said PE multiples were potentially much higher than in listed equity or real estate.

The report said that investors will not slow down even if the exit market was not strong, because investors are looking to buy-in now. On average, investors are able to make exits at 5-10x after taxes and amortization.

Demographic strength

Vietnam’s attractiveness lies in the fact that it has a cheaper workforce than China, and is a member of the Trans-Pacific Partnership trade bloc. It also has beneficial trade deals with the European Union, which have given a fillip to the economy. The government has also put in place incentives to attract investors away from neighbouring countries.

Vietnam’s population has a median age of just 30, and most of them are tech-savvy, with good computer programming skills. This supply of high quality talent and favourable investment environment led South Korean giant Samsung Electronics to make Vietnam its production hub, while other electronics majors such as LG, Panasonic and Toshiba have expanded their research and development units.

The number of investable companies has not been sufficient compared to the potential of Vietnam PE market. VinaCapital said it screened over 200 transactions every year, but only a few ever proceeded to the due diligence phase and around 10 finally got funded.

Also read: Vietnam: VinaCapital to focus on PE investment, reduces real estate holdings

Accompanying domestic PE firms, a lot of international funds have set up their vehicles dedicated only for Vietnam, like Dream Incubator and Maj Investment.

Denmark-incorporated Maj Investment launched LD Invest Vietnam K/S in 2009, marking its first international foray. The unit fund has fully invested $75 million in six Vietnamese businesses in various sectors, from agriculture to education.

Japanese PE firm Dream Incubator launched a $50 million DI Asian Industrial Fund, and has also launched its second vehicle for the Southeast Asian region, with majority funding earmarked for Vietnam. Its latest disclosed investment is in BPO firm Le & Associates to hold a 34 per cent stake.

Top attractions

The retail and food and beverage (F&B) sectors are predicted to be the biggest drivers for private equity investment in Vietnam, largely thanks to the overall economic growth and specific opportunities of each industry, according to Grant Thornton.

For the retail sector, global agencies see Vietnam as one of the most promising consumer markets in Asia, and the attractiveness of the sector was ranked 28 globally. However, the retail market is still in the early stages — modern trade channels account for only 20 per cent, relatively low compared to other regional countries.

“The large population with growing middle class, together with the a growing urbanisation that will cause changes in shopping habits, will provide solid support to facilitate faster growth rates, expected at CAGR of 13 per cent in 2015-2018,” it explained.

With such attraction, Vietnam has witnessed a fierce competition among both large international and domestic investors such as Thailand’s Berli Jucker and Central Group, Japan’s AEON, and local developer Vingroup.

Together with a growing number of food retail channels, the F&B sector is promising to grow rapidly to meet the strong demand of consumers, caused by the increase in disposable income levels, changes in lifestyles, and the habit of drinking and eating out particularly in major cities.

Huy Vietnam and Golden Gate Group are two typical examples in this area. The deals involved big international funds such as Templeton Emerging Markets Group and Standard Chartered Private Equity.

Also read:

Templeton leads $15m Series C for Vietnam restaurant operator

Vietnam needs to develop capital market for private equity investing to grow: Dragon Capital

Vietnam is a long term strategic market: Warburg Pincus

Mekong Capital raises $87m for its fourth fund, to begin making investments ‘within weeks’

 

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.