New developments aid merger & acquisition activities

The Government in the 2016-2020 term is making every effort to boost economic growth together with sustainable development and to help businesses address difficulties, by reducing production costs and improving their competitiveness and effectiveness, according to Nguyen The Phuong, Planning and Investment Deputy Minister.

Changes in the laws on investment and enterprises effective a year ago and dozens of guiding decrees that recently took effect and regulations on doing business are now more transparent and are providing favourable conditions for investment and trading.

The Government is speeding up the restructure and equitisation of State-owned enterprises to improve performance and allow them to sell more of their stakes to investors.

Joining free trade agreements with the ASEAN, the Republic of Korea, the EU and the expected Trans-Pacific Partnership as well as the formation of ASEAN Economic Community (AEC) has given an impetus for Vietnam to speed up improvement of its market economic policies and economic restructuring, resulting in more opportunities for merger and acquisition (M&A) activities.

According to experts, by doing so, the country has taken a long step into global integration, helping Vietnamese businesses improve competitiveness and join the global supply chain, a factor that makes it a sought-after investment destination.

Another factor encouraging businesses is the Law on Investment, which went into effect in early 2015, simplified capital contributions to hold stakes in local businesses.

Most of the M&A deals were made by foreign investors who purchased local firms with different purposes: targeting local facilities and materials like the case of Semen Gresik-Thăng Long Cement transaction. The acquisition by the Indonesian firm opened up ways for the cement products to go to the markets of Indonesia, Singapore and the Middle East.

Meanwhile, Thailand’s Singha Asia’s US$1.1 billion stake in the Massan Group brought hope to both partners to enhance growth in the ASEAN region with a focus on Vietnam, Thailand, Myanmar, Cambodia and Laos.

The Thai Central Group, together with its Vietnamese partner Nguyen Kim Trading JSC, acquired supermarket chain Big C Vietnam earlier this year. It is said to be aiming at strengthening distribution capacity.

Retail has proven to be one of the sectors with potential growth in Vietnam.

Vietnamese companies are also buying businesses around the world, though on a much smaller scale.

Earlier this year, the Vietnam Dairy Products Corporation (Vinamilk) announced the Ministry of Planning and Investment’s approval for its additional US$3 million investment in Driftwood Dairy. This would make its total investment to US$10 million for its whole ownership of the American company.

The Corporation for Financing and Promoting Technology (FPT) also bought RWE IT Slovakia, an affiliate of a leading German energy group. The acquisition brought in nearly 400 IT specialists and new customers in Europe for FPT.

According to figures from MPI’s Foreign Investment Agency, foreign investors paid US$2.9 billion to buy stakes in 3,140 local companies from last July to now.  Of the amount, around US$1.9 billion was for buying stakes of more than 50%.

During the first seven months of the year, purchases worth US$1.5 billion were made by foreign investors in businesses for stakes of more than 50%, excluding smaller percentage stakes.

The first seven months saw M&A deals worth more than a total of US$3.2 billion, compared to the figure of the past five years, which is US$18 billion.

The deals covered most economic sectors, especially retail, consumer goods and real estate, according to Phương.

Property developer Tiến Phước, for example, attracted foreign investors to four of its projects in the past eight years, including the sale of 40% of Empire City in Ho Chi Minh City’s District 2 for US$94 million, to Singapore’s Keppel Land.

But Keppel Land also had an additional three purchases from other stakeholders in the project, bringing total investment to almost US$235 million.

Professor Christopher Kummer of the Institute for Mergers, Acquisitions and Alliances of Switzerland agreed that M&As with Vietnamese companies had reached a new record (at around US$5.2 billion) last year and anticipated that this year the figure might peak at US$6 billion with 600 deals.

“A couple of factors have contributed to this development. Local companies in Vietnam have continued to use M&A to realise strategic growth within growing markets,” he said.

“The forecasted growth this year in the country is one of the highest worldwide and this growth attracts foreign companies to expand their markets and footprint in Vietnam. Well-positioned trade agreements by the Vietnamese government have helped increase this overall attractiveness,” he added.