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M&As point to growth
A slow start, but a strong finish to the year. Overall merger and acquisition (M&A) values and volumes appear to have returned to a growth path in 2009's fourth quarter giving grounds for optimism for 2010, writes Stephen Gaskill, advisory partner at PricewaterhouseCoopers Vietnam.
Overall M&A activity in Vietnam during 2009 grew by 2 percent in value terms and by 77 percent in volume terms. This was largely thanks to a strong pick up in deal volumes in the second half of the year which was driven initially by domestic transactions and then by a strong pick up in inbound deal activity in the last quarter.
Higher average deal sizes in the last quarter reflected several significant investments in Masan Group Corporation by different investors, but also appears to indicate growing confidence levels amongst international companies, especially those from Asia.
Another notable trend for 2009 was the increase in deals conducted by private equity firms including a small number of larger deals reflecting ongoing needs amongst some of the larger private Vietnamese companies for expansion capital and the return of more bullish sentiment at fund managers.
There appears to be a growing trend amongst major Vietnamese conglomerates (For example PetroVietnam) to restructure their organisations, remove smaller competitors through acquisition/mergers and expand their operations into new sectors of the economy.
We expect continued growth in deal activity in all categories with deals between domestic companies continuing to accelerate as growing Vietnamese corporations looking for M&A targets in which to invest their cash surpluses and to facilitate further growth. Inbound strategic acquisitions as well as private equity deals are also viewed as following a positive trend in 2010.
In addition it is particularly important to highlight that the government specifically indicated in the first week of January its intention to resume the equitisation process during 2010 which may lead to some larger deals occurring during the current year. There is also an urge for consolidation of various state-owned enterprises due to the need to rationalise operations and improve exporting competitiveness to decrease the trade deficit.
Private equity
Last year saw an acceleration in the number of divestments by the more mature funds, which was a very positive sign for the industry in Vietnam indicating that profitable exits can be successfully concluded and can be achieved through a variety of routes.
We also observed an increase in the rate of new investments by private equity funds indicating that funds were still available to invest and that market pricing had become more attractive and that fund managers were becoming more confident regarding the Vietnam/global economic situation. Last year also saw the demise of Indochina’s private equity fund which is now in the process of being liquidated.
This year is likely to see much of the same with the more mature funds looking to exit quite a number of mature investments and to recycle funds into more dynamic sectors or companies. This will also create opportunities for strategic investors to acquire significant stakes in a number of private or newly listed Vietnamese companies from the private equity funds.
Certain fund managers are looking to raise new funds in 2010 but admit that the environment is still very challenging in this regard. However, most still have cash available to invest whilst regional and global fund managers will be focusing greater attention on Vietnam due to its economic performance and prospect hence the prospects for deals appears positive. Regarding pricing for private equity investments, whilst still expensive relative to other countries in the region, remain below the levels seen in 2007 and to some extent reflect the rapid rates of growth being achieved by many private companies.
The combination of factors above leads us to expect to see an increase in divestments from the established funds and an increase in new investments by Vietnam focused and regionally focused funds during 2010. Increasing interest rates may also encourage cash hungry Vietnamese private companies to turn to private equity for expansion capital creating more opportunities for fund managers.
FMCG
Domestic demand oriented companies in the fast moving consumer goods (FMCG) sector will continue to attract the most attention from those private equity funds which are not infrastructure/real estate focused and from strategic investors interested in accessing sectors likely to see ongoing rapid rates of growth. Recent investments in Masan Group Corporation during 2009 were indicative of this trend. We would, therefore, expect significant numbers of M&A deals in this sector in 2010.
Entertainment and media
With a number of inbound M&A transactions having been seen over the past two to three years, this is still an attractive and potentially high growth sector and we are certain to see further acquisitions by global players during 2010 as well as consolidation amongst the smaller local companies.
According to the 10th annual PricewaterhouseCoopers Global Entertainment & Media (E&M) Outlook covering the years 2009-2013, the overall E&M compound annual growth rate of Vietnam is projected to be the highest one in the world at 16.7 per cent.
Financial services
After a quiet two years in this sector, 2010 may well see a rise in M&A. Certain of the larger private joint stock banks remain without a strategic investor and will be looking to bring in the expertise of a major international bank whilst smaller joint stock banks are looking for fresh capital injections in order to meet government capitalisation requirements.
Consolidation in the banking sector has been much anticipated but has yet to materialise but one feels that this has to happen soon if smaller banks are to be able to compete.
The insurance sector continues to attract overseas interest and a number of the smaller life and non-life companies are likely to be targets for strategic buyers during 2010. Consolidation amongst the smaller firms seems to be compelling in securities trading.
Real estate
Whilst the office, serviced apartment and hotel sector returns appear for the time being to have become less attractive, the condominium/villa sector and the second home market is still attracting strong interest and many private Vietnamese companies are likely to look to raise new funds in 2010 to take advantage of such opportunities, stimulating M&A in the process.
It is worth to note that a recent study by PricewaterhouseCoopers concluded that Ho Chi Minh City and Hanoi top a worldwide list of cities having the highest economic growth potential up to 2025, with a potential average growth rate of 7 per cent, per annum. Another study conducted jointly by PricewaterhouseCoopers and the Urban Land Institute concluded that Ho Chi Minh City’s development prospects are the third highest in Asia.
Industries that supply the FMCG and other sectors linked to domestic demand are also likely to see significant levels of M&A particularly logistics. In addition, the ongoing need to massive capital injections into infrastructure in Vietnam is likely to stimulate M&A in this area.
The retail sector continues to attract a great deal of attention, however, deals in this space are more likely to be private equity players rather than strategic ones. Consolidation in the textiles manufacturing and distressed sales are possible in 2010. Lastly, the education sector where there are already a number of significant private Vietnamese companies and foreign businesses with critical mass would be attractive as M&A targets.
VietNamNet, VIR
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