Following the emergence of great merger and acquisition (M&A) activities in 2011, new M&A deals are expected to continue transforming the business environment in 2012. Thanh Thuy reports.
M&A activities in Vietnam are set to grow by 20-40 per cent this year. That is the predication of VinaCapital managing director Andy Ho who made a presentation at the fourth annual M&A Forum that VIR organised in HCM City last week.
The figure will break the record of M&A deals in Vietnam in 2011, estimated at $4.7 billion, according to Thomson Reuter, IMAA and AVM Vietnam statistics. However, it did not surprise speakers and around 450 participants from leading corporations and investors attending the forum.
Bao Viet Securities CEO Nhu Dinh Hoa said: “Vietnam can reach the figure [growth of 20-40 per cent] or higher growth as conditions leading to considerable growth in 2011′s M&A deals and value still exist.” Hoa said the high cost of domestic capital and a gloomy domestic economy would last until by the end of 2012.
“Commercial banks’ interest rates have been gradually decreasing. But due to a tough business environment, most small Vietnamese enterprises are afraid to do or expand their businesses. They are waiting for overseas capital with a low cost or need a greater cooperation with partners to be part of M&A deals in 2012,” said Hoa.
Hoa predicted that most M&A deals in 2012 would be mergers among small Vietnamese enterprises, while Ho said foreign investors from Japan, Singapore and Hong Kong would enjoy the benefit of low cost capital to enter M&A deals in Vietnam. Ho said only cash-rich domestic businesses could successfully execute M&A transactions.
Recent successful M&A transactions have centered on the consumption sector like Diagieo acquiring a 45 per cent stake in Halico, Unicharm buying 95 per cent of Diana and Vietcombank issuing 347.6 million shares, equivalent to a 15 per cent stake, to Japanese Mizuho Corporate Bank.
Ho forecasted that domestic related consumption firms such as tSTC in consumer goods and banking would continue to be M&A targets. Dang Xuan Minh, director of the AVM Vietnam Company, agreed that M&A potential deals would focus on manufacturing, consumer goods, finance and banking.
Industries such telecommunications, media and entertainment, real estate, mine ores and pharmaceuticals would also attract interest. Minh said more deals bigger than $5 million would be clinched between foreigners and state enterprises planning to be equitised and restructured.
While there was agreement the business environment offered stunning opportunities for the growth of M&A activities in Vietnam, experts attending at the forum said there were risks associated with every M&A deal.
Graham Soutar, chief executive officer of LN Investment, said: “Vietnam is considered as a potential investment destination by many foreign investors after the recent slowdown in China’s growth and its rising labour costs. However, many issues existing in the country constrict foreign demand.”
Soutar pointed to the nation’s legal barriers such current tax rates, foreign ownership caps and licencing conditions and financial, valuation and accounting issues. “Vietnamese enterprises, especially enterprises in property always set a price much higher than acceptable prices for property. That discourages investors,” he said..
Soutar said that M&A transactions between foreign investors and Vietnamese enterprises were often delayed or even killed by Vietnamese enterprises not adequately preparing before offering M&A opportunities to foreign investors.
“They [Vietnamese enterprises] want foreign investors to pour money into their companies via M&A activities, but they did not build a good marketing campaign. “It means that many foreign investors come to study enterprises, but do not make deals,” he added.
Jean Predieri, head of corporate finance of Viet Au Corporation, said an obsession “loss of face” of most Vietnamese enterprises’ leaders was another issue to limit successful M&A deals in Vietnam.
“Most Vietnamese enterprises’ leaders are afraid that their image will be impacted on if others know they would like to sell put their property on sale. So, finding potential buyers and purchasers face many difficulties,” said Predieri.
John Ditty, chair of KPMG Vietnam, emphasized that cultural management style differences and clashes were was one of the key reasons for deals flopping. However, Ditty said up to three years was needed to evaluate a merger or acquisition.
Scott J.Burnett, managing director of Towers Watson, said the human element was the key factor to help companies join M&A activities and achieve anticipated synergies. “Deals succeed if people buy into the long-term vision and strategy. Engagement drops in periods of uncertainty during a deal. There’s a clear link between engagement, productivity and business performance.
If you can minimise that uncertainty, you can minimise the drop in productivity. That is a key role for human resources,” he noted. Burnett said enterprises should think local and act global. “That means after M&A deals, both parties should leverage on local resources, gain valuable local perspective, align with local culture and then learn from experiences in other markets, put in place governance structures and provide global learning and development opportunities.”