M&A market 2019: What are the opportunities for a breakthrough?

	Need to have more opportunities for foreign investors
	The dynamics of Vietnam’s M&A market
	M&A gateway to firms’ growth and expansion

BIDV sold 15 percent of its shares to KEB Hana Bank (South Korea) as a major M&A deal in the first half of 2019. Source: Internet.

Open opportunities

According to experts, after a decade of strong growth with thousands of transactions and a total transaction value of nearly 50 billion USD, Vietnam’s M&A market has entered a new era with many new opportunities.

Incomplete statistics show that the estimated total value of M&A deals in Vietnam in the first seven months of 2019 reached nearly 5.43 billion USD, including nearly 2.8 billion USD from M&A deals published in Vietnam and about 2.64 billion USD of foreign investors contributing capital to buy shares in Vietnamese enterprises. Forecasts of 2019’s value of M&A deals reached 6.7 billion USD.

Opportunities for M&A in 2019 are open. The report of the Vietnam M&A Forum Research Group (MAF) and the Merger and Investment Research Center (CMAC) said in 2018 and especially in 2019, a series of recent policy moves such as draft amendments and supplements to a number of important laws (Investment Law, Enterprise Law, Securities Law), resolution on attracting new generation of foreign investment for the first time is expected to be issued by the Politburo, the signing of new free trade agreements such as CPTPP, EVFTA, EVIPA Investment Protection Agreement are all expected to open a great opportunity for Vietnam to attract more foreign investment, including investment capital flow through M&A.

The most active M&A sectors in 2018 and the first half of 2019 focused on market exploitation of more than 96 million people of Vietnam including consumer goods and real estate production. These are two areas that attract great attention from investors, especially foreign investors. Besides, notable deals are also focused on consumer finance, retail, seafood, logistics and education.

In the banking sector, transactions focused on buying consumer finance companies, card management companies and financial services to serve the growing demand of the market. In July 2019, the KEB Hana Bank deal (South Korea) spent 885 million USD to buy 15 percent stake of BIDV has become a key trade of 2019. This is also the M&A deal with a large foreign factor, the most recorded in the history of Vietnamese banking industry.

Commenting on M&As in the banking sector, Michael DC Choi, Deputy General Director of the Korea Trade and Investment Promotion Agency (Kotra), said Korean investors are very interested in the banking andfinancing sectors in Vietnam. Currently, there are five big Korean banks present in Vietnam, which are also interested in Vietnam’s market. Not only that, many large Korean corporations are interested in the financial sector, while Lotte is interested in consumer finance from Techcombank. Also according to a KOTRA representative, Korean capital inflows into Vietnam through M&As have increased significantly in the past decade and now account for about 35 percent of Korean capital into Vietnam with many sectors such as consumer goods and food, logistics and financial services.

Diverse sources of goods

Besides banking, M&As are promising many big deals when many big banks such as Agribank, Vietcombank and BIDVare still in the process of selling capital, M&A transactions in real estate sector also show the field continues to be a fertile land attracting investors' attention. Even in the first half of this year, this market has recorded three big M&A deals, of which which transactions were done by foreign delegations, namely Lotte E&C and Keppel Land. Specifically, Keppel Land spent money to buy 60 percent of the shares of 6.2 hectares of land lots in Nha Be district (HCM City) from Phu Long Real Estate Company. At the same time, Lotte E&C, a member of Lotte Group, signed an investment cooperation contract with Hung Loc Phat Company for a project in District 7, HCM City. Market developments also showed that along with Singapore, Japanese investments have experienced strong acceleration over the past time. Notably, if before, Japanese investors implemented many M&A deals in the financial and consumer goods sectors, in 2018 - 2019, they moved to real estate.

Dang Van Quang, Director of Jones Lang LaSalle (JLL) Vietnam said that Vietnam is still one of the favourite destinations for foreign investment flows in Southeast Asia. One of the reasons is that Vietnam has been improving transparency in the real estate market. Accordingly, industrial real estate will be the hottest industry in 2019, driven by the shift of enterprises from China and positive impacts from the CPTPP and EVFTA agreements.

In addition to traditional M&A investments, positive signals from the new generation also began to appear, namely M&A start-up businesses. If in 2017, Vietnam received 92 investment deals in startups with a total capital of just over 291 million USD, then in 2018 the investment capital Vietnamese startups attracted tripled compared to 2017 with 92 deals, reaching 889 million USD. The top five startup groups attracting the most investment are fintech (financial technology), e-commerce, travel tech (starting the technology-based tourism industry), logistics and edtech (starting education industry based on technology).

Need a drastic change

Although promising many opportunities, the 2019 M&A market also faces many challenges. In terms of market size, in 2018, most Southeast Asian countries declined in value of M&A and Vietnam is ranked second in M&A value after Thailand at 9.3 billion USD, ranking above Singapore 6.7 billion USD, Malaysia 5.1 billion USD and Indonesia 2.8 billion USD. However, in terms of business scale, Vietnam’s market is still mainly small transactions with scale of 5-6 million USD (equivalent to 100 - 120 billion VND), small-scale transactions account for some 90 percent of the number of deals. Foreign investors continue to play an important role with medium and large-scale deals from 20-100 million USD. Foreign investors, especially those from Singapore, Hong Kong, Thailand, South Korea and Japan, still play an important role in M&A activities in Vietnam. In terms of buyers, foreign investors dominate, while Vietnamese enterprises are currently in a passive role as sellers.

Not to mention, there are many challenges the M&A market faces from objective factors as well as internal economic conditions of Vietnam. That is the change of US and China international trade policies; obstacles from equitisation and divestment of State-owned enterprises are stalling; business quality, transparency in financial statements of enterprises; economy scale is not attractive enough; policy barriers have not yet been finalised in the Vietnamese economy.

Experts also said that for the market to break out, the Government and related parties must have strong determination and change to improve the investment-business environment, to clear capital flow in country and international in the field of M&A. In particular, the State as well as enterprises, especially SOEs with quality stocks, need to be more willing to sell capital.

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"Currently the State is inclined to want to sell but still has the mentality to keep. It is not even a matter of how much or a lot of shares are sold, but even the State sector does not need to keep the dominant rate but because it is still the ‘golden egg chicken‘ so the State sells partly. Therefore, for M&A breakout, I think that there should be a change in the openness of the State as well as businesses. Enterprises need more willingness to sell capital. The State must also be willing to sell more quality stocks such as Vinamilk or Vietcombank,” M&A expert Nguyen Quoc Viet said.