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Domestic firms eye M&A strategies   2009-01-22 - Viet Nam News

Interest in mergers and acquisitions remained high in Viet Nam last year, with successful domestic companies increasingly being open to deal-making as they pursue expansion strategies, a report says.

Companies struggling to cope with the changing economic environment were more open to discussions regarding the sale of equity stakes to domestic and foreign suitors.

The number of deals between Vietnamese companies doubled in comparison to 2007, according to a recent PricewaterhouseCoopers review.

Strong interest in deal-making unfortunately did not translate to growth in all measures of M&A activity, the review said.

While the number of announced deals increased to 146 compared to 108 in 2007 and only 38 in 2006, the total value of these deals came to only US$1,009 million, comparing poorly to the US$1,719 million recorded in 2007.

Still, this was more than triple the value of all deals announced in 2006.

This reflects the slow pace of equitisation and several larger deals, since most of the large deals in 2007 were related to newly equitised State-owned Enterprises (SoEs).

Market participants generally agreed that valuations were much more realistic during 2008 than in 2007 as the stock market declined to an average Price-Earnings (PE) ratio close to 10, and access to credit became significantly more difficult.

The financial sector remains the most active, followed by industry, with the latter being a significantly more active sector than in 2007 driven by deals in transportation and infrastructure and in the automotive industries.

Media and entertainment was another growth sector in 2008, accounting for 12 per cent of all deals, in particular, in advertising and the marketing and internet.

The activity in this industry confirms the sentiments of the PwC’s Global Entertainment and Media Outlook report published last summer.

The conclusion was that Viet Nam had the potential to be one of the world’s fastest-growing television subscription markets over the next five years.

Notable deals

In July, Jardine Cycle&Carriage announced it had acquired a 12 per cent interest in Truong Hai Auto Corporation, a leading Vietnamese automotive company, for a cost of approximately $41 million.

In August, JC&C acquired a further 8 per cent stake for $39 million.

In August, France’s Societe Generale, among the market leaders in project and export finance in Viet Nam, announced the acquisition of 15 per cent of Southeast Asia Bank (SeABank) and its holding is expected to rise to 20 per cent in the future, the maximum allowable under the current regulations.

Also in August, in a deal valued at approximately US$9.1 million, Daikin Industries Ltd of Japan bought Viet Kim Co, a HCM City-based air conditioner distributor.

Holcim Viet Nam, a joint venture between Switzerland’s Holcim Group and Ha Tien 1 Cement Company, helped make August a busy M&A month, acquiring COTEC Cement from the Vietnamese-owned COTEC Group for an estimated $50 million.

In another notable deal in December 2008, Watson Wyatt Worldwide Inc, a global consulting firm, announced that it had acquired SMART Human Resource Viet Nam Co.

By establishing its operations in Viet Nam through the acquisition, Watson Wyatt is aiming to provide its global and regional clients with consulting advice in what it considers one of Asia’s most dynamic emerging markets.

Although the number of deals conducted by Vietnamese companies abroad is limited, PwC said it was noteworthy that in December 2008 PetroVietnam raised its interest in Rusvietpetro, a Russian oil and gas exploration and production company, to 98 per cent from 49 per cent, through the acquisition of a 49 per cent stake owned by Zarubezhneft.

Rusvietpetro has the right to develop four oil blocks in the Tsentralno-Khoreiveskoe plateau in Russia’s Nenets Autonomous District. The company is expected to start producing oil from the blocks in 2011.

In a domestic deal at the end of December, the Prime Minister approved in principle the purchase of a 15 per cent stake in the Military Joint-Stock Commercial Bank by the Viet Nam Military Telecommunications Corp (Viettel).

Funds including Mekong Enterprise Fund II, IDG Ventures Viet Nam and Viet Nam Infrastructure had various deals.

They included the $2.6 million investment in the hotpot restaurant firm Golden Gate Trade Services Joint Stock Company by MEF II.

IDG Ventures Viet Nam in July announced establishment of a strategic partnership with Mua Ban Joint-Stock Company, the operator of the popular classified advertising website

Viet Nam Infrastructure’s acquisition of an undisclosed minority stake in Phu My Bridge Corporation for $10.8 million was one of its deals.

Investment outlook

According to PwC’s review, the ongoing global financial crisis has made it difficult to predict M&A activity in Viet Nam this year.

The company, however, believes that interest in the country remains high as foreign investors continue to view the underlying long-term potential of the economy in a positive light.

Most investors will move forward on deals more cautiously than they did prior to mid-2008, and negotiations on pricing and deal terms will in general be tougher and more time-consuming to conclude, according to the review.

PwC’s review, noting the recent changes in local legislation, said there would be increased foreign investment via M&A in those sectors now open to 100 per cent ownership by foreigners, with retail being one of the sectors with the highest potential.

"Subject to improved consistency in the application of approved legislation, we expect to see a number of joint-ventures formerly established across various sectors under the previously more restrictive legal environment to be converted into 100 per cent foreign-owned companies.

"We also expect to see further realignment and consolidation among Vietnamese companies, operating in those sectors suffering most from ongoing economic problems and stock exchange performance – for example, the smaller banks, securities companies, steel manufacturers and real estate developers.

"Accordingly, domestic M&A appears likely to continue at levels equivalent to if not higher than that seen in 2008."

Retail industry

The attractiveness of the retail industry in Viet Nam is very clear since the long-term economic growth potential of Viet Nam remains strong and the modern organised retail sector remains behind Asian and global averages.

The size of the sector is currently far below its potential with organised, modern retail estimated to account for less than 20 per cent of the market.

In particular while sales of fast-moving consumer goods grow rapidly in the major cities, Viet Nam is yet to experience the urban population explosion taking place in other rapidly developing countries in Asia.

Real estate

Issues around liquidity, cost of finance and rates of return from real estate projects have led to many projects being put on hold or being abandoned altogether.

The likelihood is that many Vietnamese and foreign companies in the sector or those that engaged in real estate activity as a non-core business will be seeking to bring in foreign shareholders with strong balance sheets to help them complete projects and possibly to develop new ones.


This year is expected to have some important developments leading to major deals.

In particular, the August 2008 appointment of Credit Suisse as lead advisor in connection with the long awaited equitisation and IPO of MobiFone, Viet Nam’s second largest mobile phone operator, indicated that privatisation of the company was progressing, albeit slowly.

Financial Services

M&A deals are expected to strongly develop in the financial services sector, especially in relation to local banks and securities companies.

This is due to the explosion in the number of such entities established over the past 10 years, creating an intensely competitive market place for the smaller players.

The current difficult market conditions in both the banking and securities sectors have increased the financial pressures on smaller players.

The review also forecasts the potential for deal activity in the insurance sector, subject to improvements in valuation expectations.

The sector remains attractive to foreign companies and local companies alike and is currently open to new entrants.

In the foreseeable future, the Vietnamese insurance industry is projected to grow significantly faster than the global growth rate as the overall insurance penetration based on a percentage of GDP is a mere 1.5 per cent compared to the global penetration rate of 7.5 per cent.

PwC Viet Nam provides industry-focused assurance, tax, legal and advisory services.

It recently received, among other companies, a Golden Dragon Award, an annual awards event co-organised by Vietnam Economic Times and the Foreign Investment Department under the Ministry of Planning and Investment. It acknowledges and honour the success of foreign invested enterprises (FIEs) in the country and their contribution to the economy.

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