It’s very struggling for domestic enterprises to join the M & A market

The domestic enterprises gradually active

Recently, a report of the Vietnam M & A Forum 2018 showed that the market share of domestic enterprises is still very small. In particular, for medium and large sized businesses ($ 20 - $ 100 million), foreign investors continue to play an important role in the M & A market. They dominate the list of big value deals.

Mr. Dang Xuan Minh, general director of AVM company, specializing in consulting M & A business, said that the foreign investors continue to lead the M & A market in Vietnam. Specifically, in 2017, business value bought by foreign investors accounted for 91.8%, while the domestic investors bought only 8.2%. This proportion changed after the first 6 months of 2018 when business conducted by Vietnamese enterprises reached 17.72%. However, foreign investors’ capital still accounts for 82.28%

The recent investment movement by domestic investors shows that their role is getting larger and they have an active strategy. The typical enterprises for the implementation of M & A strategy of Vietnam enterprises include Vingroup, Kido, Masan, Ree, Pan Group, FPT ... These enterprises are also the enterprises appearing as active buyers in the lists of 100 major businesses in Vietnam. In smaller enterprises their perceptions of M & A, pricing strategies for selling businesses and partner selection strategies, have changed a lot compared to 10 years ago.

For example, in July of this year, FPT Corporation spent $ 30 million to acquire Intellinet Consulting company (Intellinet). Accordingly, the company sold 90% of its stake to FPT Corporation. This combination is expected to help FPT boost its operations in the US market. In July, the International Commercial Joint Stock Bank (VIB) announced the transfer of all operations of Commonwealth Bank of Australia (CBA), branch in HCM city. Previously, Kido Group successfully acquired 12.34 million shares (accounting for 65%) of Tuong An Vegetable Oil Company in 2016, with an estimated transaction value of VND 1,012 billion. After that, in May 2017, this Group completed its acquisition of a 27% stake in Vietnam Vegetable Oil Corporation - Vocarimex raising Kido's stake to 51%.

"Last time, there were only foreign enterprises involved in M & A activities but now many Vietnamese investors are involved. Vietnamese enterprises have become active buyers in the business," said Mr Dang Xuan Minh. Accordingly, Vietnamese companies not only buy actively but also have strategies to use M & A to achieve breakthrough growth. Names that can be mentioned are, Kido, Vingroup, FPT, Viettel, Vinamilk ... These companies cleverly use M & A to become larger than other companies. According to Mr Pham Van Thinh General Director of Deloitte Vietnam, "There is a strong rise in the internal market for M & A activities, especially with large enterprises. He also said, domestic enterprises will be the main driving force to develop the M & A market, besides the traditional foreign investors.”

Supporting domestic enterprises to participate in large business

As sellers, the domestic enterprises are more active in finding partners. Recently, at the M & A 2018 Forum, Ms. Huong Nguyen, General Director of Dai Phuc Land Real Estate Joint Stock Company, Business Director of Dai Phuc Group said that M & A in the real estate market has many large scale businesses and growing demand for housing in the fast paced urbanization market. Dai Phuc Land Group currently has 198 hectares of land in the North East of Ho Chi Minh City, they are in need of building projects such as schools, hospitals, trade centers, entertainment areas ... to serve the community. However, due to the large investment capital, this company actively invited Korean investors and some other investors to participate.

In fact, the domestic enterprises not only meet the opportunities but also face the challenges and difficulties in the M & A market. For attracting capital from investors the capacity to do business is important, however, according to the report of MAF research group, the capacity of Vietnamese enterprises is weak. Foreign investors are interested in large scale companies, however, chartered capital of most listed companies in Vietnam is just VND50-80 billion, equivalent to USD2-4 million, with capitalization of about 5-10 million USD. There are many smaller and less competitive companies so investors are not interested in them.

Financial statements and information disclosures from companies that are selling are not transparent, and this is the biggest problem affecting investment attraction, especially foreign investors. Currently, most Vietnamese companies still have a two-book accounting system, which makes investors hesitate about the accuracy of the financial figures.

Sharing difficulties and obstacles in the process of attracting investment capital for businesses, Ms Huong Nguyen said that the procedures for investment cooperation in Vietnam take too much time because of cumbersome procedures, completing procedures can take 12 to 18 months, and even longer. The enterprises’ dossiers must be approved by many levels, which is one of the biggest issues for investors. Therefore, the representative of this company said that it is necessary to provide effective legal support from the Government as well as related agencies for faster and more effective M & A transactions.

From the perspective of the buyers, many opinions show that in order to be more active in the fight for market share with foreign companies in the M & A market, domestic companies should promote their advantages in the ability to understand the market, literature. At the same time, they should invest and improve their competitiveness from the internal strength of enterprises, improving the governance in the direction of transparency and efficiency. On the side of the Government, it is necessary to create more conditions for domestic investors to participate in big deals such as with bank loan support, priority on selection criteria for strategic domestic investors to facilitate for the domestic enterprises to participate in M & A.