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Mergers and acquisitions market stronger in VN
Mergers and Acquisitions (M&A) has recently become one of the hottest issues in Viet Nam, notably in the face of the economic downturn. Local enterprises are seeing many difficulties at the moment, and are lacking advanced technologies, financial resources, world-class experiences and qualified workers. M&A activities with foreign partners is regarded as a quick and effective way to bail out firms. Viet Nam News reporter Tran Phuong Hoa spoke with Ewan Patrick, director of financial advisory services for Deloitte Viet Nam in Ha Noi on Tuesday.
Do you think the economic downturn is the reason for the M&A boom in Viet Nam?
Yes. From my own perspective, things have been very busy since Tet (Lunar New Year). Generally, the M&A global market has been very quiet since late 2008. However, the M&A market in Viet Nam was considerably more active than in some neighbouring countries, such as Thailand and Malaysia. The downturn will create many opportunities for M&A in Viet Nam. The primary reason for these opportunities is that the expectations of local enterprises have been considerably reduced, thus evening out buyers and sellers, making the market more realistic than it was in 2006 and 2007.
This will drive the overall volumes and values of transactions for M&A, which will ultimately benefit the Vietnamese economy.
Which sectors are promising for foreigners interested in M&A in Viet Nam?
Right now we’re seeing a lot of interest in telecommunications, such as the privatisation of MobiFone and VinaFone.
Within Deloitte, we’ve done a lot of work on oil, gas and financial services. Oil and gas is a very important sector for the Vietnamese economy overall, and I think the construction of refineries and the utilisation of more advanced technologies will be very positive for Viet Nam.
Within financial services, we’ve seen interest in non-life insurance. For the banking sector, a number of Vietnamese banks are excessive, so we’ll probably need to see a reduction in the number of commercial banks, down to about 10 or 15.
What’s your advice for Vietnamese companies to avoid under-evaluation of their stake?
Company asset evaluation is a very interesting topic in Viet Nam. Historically, Viet Nam has considered evaluation from a historical net asset value prospective, but actually, in any M&A market, an asset is only worth the price at which a buyer is willing to purchase it.
For example, US$100 million could have been invested in a factory to produce cassettes; however, since music consumers no longer want to purchase cassettes, it’s very unlikely that a buyer would pay $100 million for the factory.
To protect the value on the sell-side, there are a number of techniques that can be used. From a foreign investor’s standpoint, the evaluation of a Vietnamese firms’ investment potential should be based on expected future earnings.
Potential investors like to consider investment opportunities with certainties attached, by bringing themselves to the market in a structured manner, with reliable financial information, solid investment rationale and secure project licensing.
Greater interest will be obtained from potential investors, as they will see an ability to complete a transaction within a shorter period of time.
How can the buyer and seller balance their mutual benefits in business?
Before the investment is completed, the buyer should sit down and negotiate with the seller and reach agreement, a specific action plan is essential to maximise your chances of a mutually beneficial relationship.
For example, within the banking sector in Viet Nam, we have seen a fair amount of investments completed within the last few years, but the post-investment returns have not always been as high as expected.
Reasons for this may be that post-investment action plans covering product development, technology roll-outs and other things were not made in sufficient detail. Equal buy-ins were not obtained from buyers and sellers.
Does Deloitte conduct surveys on M&A in Viet Nam?
Deloitte has conducted a number of M&A investment surveys on a regional and global basis. As M&A in Viet Nam is relatively new, we tend to focus on regional trends to give sufficient volumes to analyse.
Conducting this research within Southeast Asia provides some very interesting results, which allow us to benchmark Viet Nam relative to the trends we see in Thailand, Malaysia or Singapore.
This also lets us consider how the M&A market in Viet Nam may evolve. There is an increasing volume of reliable information on M&A in Viet Nam, but we’re coming from a very low starting point. I think this trend will continue as we continue to see M&A in Viet Nam getting more focus, and both local and international groups collecting and disseminating more data.
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