Mergers defy economic downturn

Mergers defy economic downturn 09/08/2013 04:06:00 987

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Mergers and acquisitions have been on the rise in Viet Nam since 2008 in terms of both value and number of deals despite the economic downturn, according to a study released yesterday by auditing and consulting firm KPMG.


In 2008, there were 92 deals worth US$1.1 billion, the figures rose to 308 deals and $5.8 billion last year, and 2013 is also expected to be a good year for M&A activities.


The major deals since last year include Bank of Tokyo-Mitsubishi's purchase of stakes in Vietinbank worth $743 million, Sumitomo Life's acquisition of shares worth $341 million in Bao Viet (insurance), and Thai group SCG buying $235 million worth stakes in enamel tile producer Prime.


Financial services, consumer goods, and materials have been among the top sectors for M&A.


Japan was the top buyer in terms of both value and number, KPMG Vietnam and Cambodia chairman John Ditty said yesterday's at an M&A Forum organised by Vietnam Investment Review newspaper and investment consulting firm AVM.


Japanese deals include Daio Paper Corp and BridgeHead Investment Fund's acquisition of 48 per cent in Saigon Paper Co, Unicharm's 95 per cent stake purchase in Diana, and Sojits's 51 per cent purchase of leading food retailer Huong Thuy.


A KPMG poll of over 400 companies that have made or will make acquisitions revealed that food and beverage (57 per cent), fast moving consumer goods (48 per cent) and pharmaceutical, medical, and biotech (42 per cent) are expected to be the key sectors for M&A in the next five years.


This is primarily driven by the country's favourable demographics and increasing disposable incomes driving consumption.


David Blackhall, managing director of VinaLand Limited, an affiliate of VinaCapital, said the macroeconomic environment has improved significantly from a year ago, with the Government's policies generating positive impacts.


But challenges remain, like bad debts, tardy bank restructuring, and the stock market's failure to prove itself as a channel for capital mobilisation, he said.


Nevertheless, there is fresh interest among companies in ASEAN member countries, he said.


Last year 15 deals worth $643 million were done by ASEAN investors, compared with six deals and $127 million in 2011.


In two or three years Thailand and the Philippines could become important partners, Blackhall said.


"ASEAN companies investing in Viet Nam are large corporations with excess cash and low financial leverage, and have access to cheaper capital than this country," he said.


M&A would help ASEAN companies not only penetrate the Vietnamese market, but also resolve problems in their own countries, he said.


"There is also very good potential in the real estate sector."


Vietnamese companies have advantages like ability to get licences and prime locations, while office and retail complexes are the most sought after by foreign investors, especially those from Japan, South Korea, Singapore, and China, he pointed out.


"Poor access to capital and operational capability result in low valuations, which makes Viet Nam attractive to foreign investors."


But many investors choose to wait for clearer signs of improvement in the macroeconomic conditions and banking sector and resolution of the bad-debt issue.


"Post-M&A integration is another big issue that this young market needs to tackle."


According to KPMG, key challenges in successfully transitioning and integrating the new business include compliance and internal control issues, cultural and management differences, and implementing changes.


Nguyen Dinh Tung, general director of Orient Commercial Bank — which has French bank Paribas BNP as a strategic partner with a 20 per cent stake — said it is very important to select the right partner.


A sound and suitable M&A strategy should be carefully worked out and its implementation carried out scrupulously.


"The two sides should accept sacrifice of short-term benefits for long-term development; will result in long-term profits," he said.


Source: VNS