As Vietnam has been able to contain the pandemic, the country is likely to see more M&A activities in 2021, Mr. Trent Davies, international business advisory manager of Dezan Shira & Associates in Ho Chi Minh City, told a recent webinar: M&A Opportunities and Processes in Vietnam.

Mr. Trent Davies, international business advisory manager of Dezan Shira & Associates in Ho Chi Minh City

M&A landscape in Vietnam

M&A has proven to be a popular route for investors to join Vietnam’s market with several deals taking place in the last few years. It is attractive to investors due to obvious advantages. To put this into perspective in 2018, there were at least 266 M&A deals in Vietnam with a value of US$7.5 billion. About 56% of this was in the form of inbound investment. 

While some large agreements were signed, such as the investment in Sabeco and Vietnam's Vinhomes, 70% of the agreements were with small and medium-sized companies. Over time, M&A has rebounded with its value growing by 21% between 2008 and 2018.

M&A deals in Vietnam in 2018. Source: Dezan Shira & Associates in Vietnam

In recent years, the world has seen a decline in M&A activity due to macroeconomic uncertainty, geopolitical instability, and the pandemic in 2020 affecting companies further. Nevertheless, the impact of Covid-19 and diversification of supply chains have made Southeast Asia attractive. 

The Ministry of Planning and Investment (MPI)'s statistics on capital contribution and share purchases between January-September 2019 and 2020 released recently showed that M&A was down by 55.1% in 2020, indicating how the activity in Vietnam was affected by the pandemic.

Nevertheless, Euromonitor International ranked Vietnam as the world’s second most attractive M&A market among emerging economies likely to make a strong comeback after the pandemic.

Source: Euromonitor International

Pros and cons

Regarding industries, most of the M&A activity has been in manufacturing and processing, followed by real estate activities, wholesale and retail trade, professional and technical activities, and construction. Leading investors have come from Singapore, Japan, and South Korea, according to Dezan Shira & Associates.

There are several reasons for the increased inbound M&A activity in Vietnam. The first is Vietnam’s demographics – it has one of the fastest-growing middle classes in the region with increasing urbanization. Secondly, consumer spending is growing with significant growth in e-commerce. Thirdly, Vietnam has several tax incentives and pro-foreign-direct-investment (FDI) policies. 

Lastly, its government is stable and has continued to focus on high growth while improving the business climate. In particular, one of Vietnam’s biggest strengths is its free trade agreements. With the EU-Vietnam Free Trade Agreement (EVFTA) recently signed, Vietnam is likely to further benefit from opening up its economy and growing trade, Mr. Davies analyzed.

Source: Ministry of Planning and Investment

“Vietnam has strong market fundamentals. Due to its control of the pandemic, the country has been able to reopen its economy quicker than others. Thus, investors investing in Vietnam will gain a first-mover advantage compared to others,” Mr. Davies said. 

The pandemic has also resulted in several distressed businesses, making them easier to be acquired. Another important opportunity is the relocation of manufacturers and supply chains from China. This is an ongoing process and there is still room to develop supply chains and support industries in Vietnam. The government is also looking to divest state-owned enterprises. This process has been slow but is definitely ongoing, he added.

Regarding challenges, border closures are a major obstacle for both buyers and sellers, however, this presents more opportunity for domestic deals. Identifying targets is another area that is quite challenging where clients don’t know where to start. There is also a lack of reliable publicly available information on target companies. 

Typically, the target companies are not legally required to disclose information and therefore it’s important to take time to do the necessary due diligence during an M&A. Dezan Shira & Associates has also seen gaps in valuation between the buyer and seller.

Regarding legal framework, Mr. Davies said that Vietnam doesn’t have a unified law on M&As, rather M&As are largely governed by the Law on Enterprise and the Law on Investment and to a lesser extent by the Law on Securities and the Law on Competition. 

The recently amended Law on Enterprises and Law on Investment will be effective from January 1, 2021. These amended laws provide updates on conditional business lines, investment incentives while removing administrative approval for certain types of investment projects. Investors should study these laws carefully before embarking on an M&A, recommended Davies.