The M&A market after Covid-19: Welcome investment wave with caution

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The M&A market in 2020 will not be as exciting as previous years due to the Covid-19 pandemic.

Must postpone or reevaluate

In the second half of 2019, many M&A deals and plans from enterprises and private corporations at home and abroad have had a reputation in the market.

The most typical one is the merger and exchange of shares between VinCommerce and VinEco (Vingroup) with Masan Consumer (Masan Group), while KEB Hana Bank (South Korea) acquired 15 percent of BIDV's charter capital.

In addition to successful deals, many M&A plans have been formed such as: Kido Group plans to merge member companies as well as plans to cooperate with Vinamilk in the beverage segment, Thaco Group restructures and invests in agriculture fieldof Hoang AnhGia Lai and Hung Vuong Group.

Therefore, at the end of 2019, the MAF and CMAC (Vietnam M&A Forum Research Group and Enterprise Investment and Trade Research Institute) forecasted that the M&A value in 2020 would continue at US$7-7.5 billion, equivalent to the value of M&A in 2018 and 2019. However, by the end of January 2020, the Covid-19 pandemic rocked the global economy, including Vietnam, which has greatly affected the M&A market.

Currently, there is information on a number of big deals but mainly old ones, which have been negotiated since previous years. For example, the Mitsubishi Corporation and Nomura Real Estate announced the purchase of 80 percent of the second phase of Vinhomes Grand Park project of Vinhomes (VHM) in District 9, Ho Chi Minh City.

According to experts, the factors hindering M&A activities include the large percentage of state ownership; financial statements and information are not transparent, price is too high, and the time for the deal is too long. There are also other obstacles related to cultural factors, language and access to businesses. But during this time, obstacles due to the pandemic have led many businesses to be postponed, or want to reconsider prices, because all businesses have difficulties and must change the strategy of cash flow orientation.

Still attractive to investors

Despite difficulties, expert of Jones Lang LaSalle Vietnam (JLL) (a company specializing in real estate services) has identified, Vietnam is still one of the most popular destinations for foreign investment flows. Therefore, the M&A market still has certain "ripples".

Accordingly, the market continues to record a “wave” of investment from Thailand, for example, Thailand Energy Company Super Energy Corporation (SUPER) will invest in four power plant projects in BinhPhuoc; Stark Group of Thailand has completed a 100 percent acquisition of capital at Thinh Phat Electric Cable Joint Stock Company and Dong Viet Non-ferrous Metal and Plastic Joint Stock Company (Dovina).

In general, due to the security factor, transactions that are in the process of negotiation and appraisal will not be disclosed. But in this year's General Meeting of Shareholders, many business leaders have revealed some information about the orientation of buying and selling stocks.

Mr. Ngo Chi Dung, Chairman of VPBank's Board of Directors, said that the bank is in negotiations to sell FE Credit shares to investors. He said FE Credit is a consumer finance company, so it can call for sale of capital of up to 49 percent, this will help bring financial, technology and executive management experience. This source of money will also help the parent bank increase capital, help focus more on the retail and small and medium-sized businesses.

Similarly, recently, the leader of Binh Duong Mineral and Construction Joint Stock Company (KSB) also said that he was entrusting investment in a construction materials company in Dong Nai with a very large scale of quarries. KSB's goal when buying this company is to expand its business and become a leader in the field of construction stone. In addition, some businesses such as IMEXPHARM Pharmaceutical Joint Stock Company and BinhDinh Pharmaceutical - Medical Equipment Joint Stock Company are also expected in M&A deals with foreign partners from South Korea and large investment funds.

Beware of cheap acquisitions

It can be seen that the M&A situation is still waiting for a breakout, of course, there is also a decrease compared to last year. However, in the common difficult situation after the Covid-19 pandemic, the domestic M&A market has raised the issue of acquiring enterprises at low prices.

Previously, the Ministry of Planning and Investment warned about the risk of acquiring domestic enterprises after the Covid-19 pandemic through share trading. The Ministry even mentioned that this is one of the five major challenges of the economy in the last months of 2020. In the proposal to the Prime Minister's Conference with businesses, representatives of Vietnam Chamber of Commerce and Industry (VCCI) also spoke about the issue of considering protecting domestic enterprises, even proposing a plan to suspend M&A activities during this pandemic period.

According to experts, many investment funds are still very "ready" to invest, looking for opportunities for future development. Therefore, the offer to buy businesses at this time is very normal, in line with the market rules. Professor - Doctor of Science Nguyen Mai, Chairman of the Association of FDI Enterprises, said that it is necessary to be open to receive, because we all expect the wave of investment movement, moreover, many businesses face difficulties due to Covid-19, it is a good thing to pump more capital.

However, many experts said that the Government should have appropriate policies and plans to attract investment, the selection of industries calling for investment must also tie with the regulations on investment rates of FDI enterprisesto have reasonable proportional control. Currently, the draft Law on Investment (amended) has taken into account measures to prevent, such as providing investment conditions for foreign investors when approaching certain industries and fields; the Government was assigned to announce the list of industries and trades restricting foreign investors.