Foreign capital expected to dominate Vietnam's M&A market

Foreign investment capital is expected to remain the main driver in mergers and acquisitions due to the high cost of domestic resources and foreign investors seeing many opportunities.

To meet Vietnam's demand for clean energy, G&P LNG - a subsidiary of Nebula Energy (USA), has purchased 49% of the shares of Cai Mep LNG port warehouse in Ba Ria - Vung Tau province. The project investor, Hai Linh Company, confirmed this over the weekend. This port warehouse is worth 500 million USD, is currently undergoing testing and is expected to be operational from the third quarter.

Before the energy deal, at the end of February, the Vietnamese mergers and acquisitions (M&A) market witnessed the transfer of 100% of the capital contribution in Home Credit Vietnam to a Thai bank. The deal is worth about 865 million USD, completed in the first half of next year.

The positivity of foreign capital in the M&A market at the beginning of the year continues the atmosphere of 2023, when the top 5 largest deals also came from foreign investors. According to data from the Ministry of Planning & Investment, over 3,450 capital contribution, share purchase or capital contribution transactions by foreign investors last year, with a value of more than 8.5 billion USD. This figure increased by nearly 66% compared to 2022.

At today's M&A conference, Dr. Nguyen Tuan Anh, a finance lecturer at RMIT University, predicted that the leading position of foreign capital will be maintained. "Foreign investors dominating the market is a long-term trend in the future," he said.

The overwhelming trend of foreign capital comes from the demand of both buyers and sellers. According to KPMG Vietnam, foreign enterprises are showing signs of shifting from opportunistic investment to long-term strategy in strong and selective industries. In addition, Vietnam's favorable position in the supply chain and population size are attractive points.

"Indonesia and Vietnam are two 'destinations' for investors when coming to Southeast Asia. In the trend of moving factories from China, Vietnam has advantages due to the shared border and many free trade agreements (FTAs) signed with other countries," said Ms. Huynh Thi Binh Minh, Director of Tael Partners Fund.

Japanese and Chinese investors have taken advantage. After the billion-dollar deal in the financial sector between SMBC and VPBank, Sojitz Vietnam also acquired the entire raw material distributor Dai Tan Viet.

"The depreciation of the yen in the past five years has been a big motivation for Japanese companies to invest money abroad, in which Vietnam is a safe choice," said Mr. Tuan Anh. According to data from KPMG Vietnam, as of the end of October 2023, Japanese investors led the M&A market, pouring 1.6 billion USD into Vietnam.

Lawyer Dao Tien Phong, who runs the consulting firm InvestPush, said Chinese investors are also interested in mergers and acquisitions in Vietnam. Their appetite is for manufacturers with ready orders to the US and Europe.

"In the South, investors prefer M&A over direct investment, to avoid wasting time building factories and meeting environmental and fire prevention conditions," Mr. Phong said.

Experts discuss at the workshop "Consumer goods and distribution industry: "M&A trends and investment strategies to call for capital for Vietnamese enterprises", March 12. Photo: LBC

Sellers also prefer foreign capital. Economist Pham Chi Lan said that seeking external resources is a trend and is more feasible than domestic capital for some businesses. "Domestic capital costs are still quite expensive and difficult to access. In addition, businesses need more technology, management skills, and market opportunities, so they also look to seek external capital," Ms. Lan commented.

Forecasting the M&A market trend in the coming time, Dr. Nguyen Tuan Anh said investors will target businesses with stable and long-term product strategies in the fields of agriculture, food, healthcare and education.

Lawyer Dao Tien Phong added that the sectors that are attracting foreign capital include distribution and new technology. Sellers have an advantage if they have implemented ESG, a sustainable development strategy revolving around three criteria: environmental, social and governance.

However, Ms. Huynh Thi Binh Minh recommends that businesses calling for capital should hire a professional financial consultant to review business results and support the development of a 3-5 year strategy. This service fee is about 2% of the transaction value and is lower than for large deals. According to her, financial consultants are also the ones who find buyers for businesses. "Choosing the right consultant will prevent the information provided by the business from falling into the hands of unnecessary buyers or competitors," she noted.

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