PE Funds Return to M&A Market

The low interest rate environment and a more diverse and quality "basket" have stimulated private equity (PE) funds to return to the M&A market.

Private equity (PE) funds are interested in the Vietnamese M&A market. In the photo: KMS Technology Company will receive investment from Sunstone Partners - a PE fund from the US.

The Exciting Return

Sunstone Partners - a leading PE fund in the US, specializing in investing in technology and software services companies, has just announced a strategic investment in KMS Technology - a software services company specializing in digital transformation, Data and AI.

Founded in 2015, Sunstone Partners has $1.7 billion in committed capital across three funds. Sunstone Partners’ investment strategy is to partner with strong managers, first-in-class capital partners, to accelerate growth and M&A for its portfolio companies.

Canaccord Genuity, Choate Hall and Stewart advised Sunstone Partners on the deal. Tree Line Capital Partners provided financing. Houlihan Lokey and Nelson Mullins Riley Scarborough advised KMS Technology.

Mr. Julian Hinderling, Deputy General Director of Sunstone Partners, believes that the trend of digital transformation in businesses still has a lot of potential for development, especially in the context of the increasingly urgent need to apply Data and AI. KMS has in-depth experience in developing software products that increase revenue for customers. When KMS takes advantage of Sunstones Partners' expertise, it will create great opportunities to innovate capacity, expand business scale, and aim for greater success in the future.

According to Mr. Lam Quoc Vu, co-founder and Chairman of the Board of Directors of KMS Technology, KMS was established with the vision of a team of high-quality engineers, along with top-notch services for global customers. The investment from Sunstone Partners is a strong testament to KMS' business model and will help the company expand further, especially in this new strategic growth phase.

Private Equity (PE) can be divided into two types

First, investors have the opportunity to assess the financial, legal, ESG, cultural and environmental issues, and corporate governance of the company. They can then negotiate certain investment terms and participate in the company's Board of Directors and Executive Committee.

Second, investors negotiate certain conditions to invest in businesses, especially listed businesses.

The above PE fund investment deals in businesses in Vietnam show that the world's largest PE funds are holding large amounts of cash and are under pressure to disburse, bringing more positive investment performance.

Notably, the lower interest rate environment has stimulated PE funds to return to the M&A market.

Consultants expect that 2025 will witness an exciting return of the M&A market. Currently, M&A activities are becoming more vibrant for many business leaders.

Investment analysts are seeing PE funds return to the market to look for businesses. Currently, they are focusing on a number of small and mid-sized companies.

In the third quarter of 2024, global PE funds spent $166.2 billion on M&A activities, up 42% year-on-year.

Notably, the recently established Vietnam Private Capital Agency (VPCA) also opens a new chapter in the investment market in Vietnam, through promoting venture capital (VC) and private equity.

There are 5 partners from investment funds in Asia joining hands, including Golden Gate Ventures (GGV), Monk's Hill Ventures (MHV), Mekong Capital, Do Ventures, Ascend Vietnam Ventures (AVV). Of which, GGV and MHV are from Singapore, the remaining 3 funds are based in Ho Chi Minh City. VPCA currently has 40 domestic and international member investment funds such as Ascend Vietnam Ventures, Mekong Capital, Vertex Ventures (India), Eurazeo (France), Open Space Ventures (Singapore), Ethos Fund (USA)...

The alliance hopes to expand its membership to 100 by the end of this year, and call for $35 billion in private investment for startups and innovation, thereby contributing to sustainable economic growth by 2035.

In addition, VinaCapital's PE fund is in the process of mobilizing this capital to invest in the logistics sector in Vietnam. At the same time, the fund is also mobilizing capital from the US, Europe, Japan, Singapore, etc. in the field of startup investment. In addition, VinaCapital is currently focusing on investing in 3 areas: finance, law, ESG on environment, culture, society and corporate governance.

Fill the gap in the flow

Amidst the volatility of the global economy, fund managers in Southeast Asia have had to adjust their strategies, opting for more conservative targets and a measured approach to raising capital. This cautious strategy aims to align with investor sentiment and position funds to take advantage of opportunities when conditions improve.

VinaCapital representative said that private investment funds are still having positive assessments and want to invest in some fields of Vietnam such as finance, startups, logistics, especially ESG (environment, culture, society and corporate governance).

Currently, 98% of enterprises in Vietnam are small and medium-sized, these enterprises need capital from 10 to 50 million USD to develop. It can help them increase revenue by 20 - 30%/year, or increase profit by 15 - 25%/year in 3 - 4 years.

Thus, after PE funds divest, they will bring good profits to investors so that they can continue to invest in sectors of the Vietnamese economy. They will even call on friends in other countries to seek investment opportunities in Vietnam.

However, PE investment is not really familiar to many businesses. Not all businesses are willing to let other investors own a large number of shares, as well as have more control.

In particular, for foreign PE investors, when investing in Vietnam, they need to have a longer-term vision. If the PE fund sets a goal for the business to achieve the desired profit in just 3-5 years, it will create a lot of pressure for the business owner.

PE will continue to grow, there are many investment opportunities. Of course, the investment scale is much larger than before. 5 - 10 - 15 years ago, PE capital disbursed was only 5 - 10 - 15 million USD/deal, but now the scale has increased to 30 - 80 million USD/deal. Currently, most PE capital is focused on businesses with a capitalization of 500 million USD or less, with revenue and profit growth of about 20 - 30%/year.

“It is important for business owners to understand the value that PE investors bring to them and how they will cooperate with them,” said a representative of VinaCapital.

In fact, global funds are rebalancing their capital to buy assets in Southeast Asia, on the expectation of lower interest rates and low valuations in the region, promising high returns... There are currently more than 40 Southeast Asia-focused funds operating in the market, seeking to raise more than $11.44 billion in committed capital. To date, these funds have raised at least 26% of their target.

Hoang Xuan Chinh, CEO of Excelsior Capital Partners, which is raising capital for its second Vietnam-focused fund, acknowledged that limited investors have become more cautious.

One of the common concerns that PE funds face in Southeast Asia is legal risks or jurisdictional issues. However, some funds with large financial potential believe that there are still large, stable, healthy businesses with high-quality professional management teams in the Vietnamese market waiting for PE funds.

According to Ms. Le Hoang Uyen Vy, Chairwoman of VPCA, Vietnam is witnessing a pivotal moment when foreign investment funds are increasingly focusing on investment opportunities. At the same time, the Government is also continuously introducing policies to promote the strong development of the business environment.

“We are committed to making the most of this potential, ensuring that capital is allocated efficiently to support innovation and sustainable economic development,” said Ms. Le Hoang Uyen Vy.

With rapid economic growth and a vibrant startup community, Vietnam has become an attractive destination for VC and PE investors. However, the need for structured capital deployment, enhanced expertise and effective support mechanisms remains essential.

Mr. Binh Tran, co-founder of Ascend Vietnam Ventures (AVV), said that although investment opportunities in Vietnam are abundant, they are still behind more developed regions such as North America, which accounts for nearly half of all private capital raised in 2023.

“There is a gap in capital flows that can only be narrowed through strategic initiatives and more comprehensive support for private capital from the Government,” said Mr. Binh Tran.

Source: https://baodautu.vn/quy-pe-quay-tro-lai-thi-truong-ma-d231045.html