KPMG Vietnam’s director of corporate finance advisory services Carl Gordon reviews the recent mergers and acquisitions (M&A) activity and key trends in Vietnam.

The years 2008 and 2009, as would be expected given the global economic crisis and the resultant global financial turmoil, experienced relatively low M&A activity, though still managed to post M&A deal flow growth levels exceeding previous years.

As both global and local economic uncertainty decreased, 2010 saw strong M&A growth over 2009 with deal volumes more than doubling and deal values near tripling to $3.2 billion. With global economic uncertainty coming to the fore again, 2011 saw a decline in the rate of growth in both deal values and volumes as compared to those in 2010.

The clear M&A sector leader is financial services, both in volume and value. This is hardly surprising as financial services, and in particular the banking sector is generally the first in any economy to experience significant M&A activity and given the nature and scale of companies in this sector, deal values also tend to be relatively high compared to the economy as a whole. The consumer markets sector, i.e. food and beverage and retail sectors, also saw significant M&A activity. Deal flows in these sectors were driven by Vietnam’s attractive demographics, i.e. a population of 90 million, which is experiencing rapid urbanisation rates from the current level of 70 per cent, coupled with high predicted annual GDP growth rates of 7.2 per cent during 2013-2016.

Click here to view Figure 1.

Japan leads the M&A country of origin table due primarily to the recent Vietcombank and Mizuho Bank deal of $546 million. Japan, with 14 deals in 2011, also represents a key source of foreign M&A investment into Vietnam. The buyers originating from the US were both private equity firms, i.e. KKR into Masan Group ($159 million) and Mount Kellett Capital into Masan Resources ($94 million). Singapore, with 16 deals in 2011, also figures strongly in terms of deal volumes, the acquirers being largely Singapore-based private equity firms.

Click here to view Figure 2.

Notably, 2011 saw no significant outbound M&A deals, i.e. Vietnam companies acquiring stakes in foreign companies, with Vietnamese-owned companies’ M&A buy-side activity being focused on the rapidly growing domestic economy.

Click here to view Figure 3.

Despite the 32.7 per cent slump in the M&A deal volume flows during the first four months of 2012 in the Asia-Pacific region, Vietnam was one of the only two bright spots, the other being Malaysia, witnessing M&A transaction volume and value grow in 2012 over the equivalent period in 2011. This deal activity is consistent with our expectations and other leading industry experts, with Japanese buyers and the banking and consumer markets sector continuing to lead the way, yet again. The banking sector specifically would be expected to have strong deal flow given the State Bank’s initiative to consolidate and strengthen the sector. The State Bank’s chief is predicting that the banking sector will see a wave of M&As in 2012.

Click here to view the table.

The key trends we expect to see in Vietnam’s developing M&A market in the short to medium term are:

  • Increasing domestic participation and continued strong interest from the Asia-Pacific region, especially Japan
  • Due diligence processes becoming increasingly more thorough
  • Demographics and GDP growth prospects continuing to drive deal flow with strong activity in the consumer markets and healthcare sectors.
  • Significant consolidation in the banking sector driven by the State Bank
  • Control being increasingly demanded by trade/strategic buyers
  • Buyer willingness to pay premiums for good governance and transparency
  • Progress relating to the government’s initiative to encourage in investment in state-owned enterprises (SOEs) through a more flexible regime for SOE’s to target strategic investors will remain slow, with many SOE’s resistant to changing behaviour and driving efficiency. Accordingly we see limited activity in this space in the near term, limiting the possibility of a significant number of larger ticket deals which could result.n

Vietnam Investment Review - Jun 04, 2012