1. What is your assessment of the M&A market in Vietnam?
Covid-19 has significantly reduced M&A activities both globally and locally in our country. With the extraordinary pandemic control, Vietnam is still emerging as a safe, attractive destination for foreign investors.
Remarkable M&A deals during the Covid-19 outbreak include the merger of VinCommerce into Masan, the acquisition of 15% of BIDV’s charter capital worth USD 878 million by KEB Hana Bank (Korea), or the acquisition of Vinhomes’ shares worth USD 650 million by KKR and Temasek.
The main industries attracting M&A deals in Vietnam from June 2019 to October 2020 are real estate, banking and finance, logistics, pharmaceutical and healthcare, and construction.
M&A activities did slow down due to the pandemic but is expected to resume its activeness in the first quarter of 2021 at earliest.
2. What is the main driver of growth of M&A activities in Vietnam, especially during the Covid-19 period?
(i) Vietnam has entered into many free trade agreements (FTAs), which help to attract investment waves from abroad. FTAs such as the CPTPP, EVFTA, EVIPA and most recently RCEP will open up more opportunities to draw in investment in the form of M&A in various sectors, especially those that require the application of high-technology such as waste-to-power energy or water treatment.
(ii) The implementation of the new Securities Law, Investment Law and Enterprise Law 2020 are also identified as an important milestone, contributing to the simplification and synchronization of relevant administrative and legal procedures. For instance, under the new Investment Law taking effect on 1 January 2021, the foreign investor threshold is lowered from 51 percent to 50 percent. In addition, the law removes the need for approval if the M&A transaction does not increase the foreign investor’s ownership ratio in the target company.
(ii) The new Government administration in Vietnam is expected to comprise of younger people with more political willingness to integrate Vietnam to the world.
3. Which are difficulties that The M&A market of Vietnam has to face in the Covid-19 pandemic?
_ Review of the purchase target: if key customers and suppliers of the target company negatively affected, potential purchaser may question the efficiency of the business model
_ Adjustment on purchase price: price agreed before the pandemic occurs are most likely based on historically high evaluations and maybe reduced upon further examination of Covid-19’s effect on the target’s operation
_ Purchase is delayed due to reduced to none site travel: For many deals, site inspection is essential for potential partners to verify information and conclude their purchase
_ Increased risk of technology fraud: e-signature can be faked, confidential information is leaked (e.g. via Zoom)
_ Dramatic reduction in stock market prices have left investors with uncertainties regarding capital market transactions
4. There is a saying that SMEs will have more benefits than a big enterprise. What do you think about that?
I think the benefits are distributed in different ways for SMEs and for large corporates. However, when looking at the Covid-19 instance, I’d say large enterprises have more benefits.
Large enterprises last against the economic downturn longer due to larger capital reserve and brand presence while we see a lot of SMEs shutting down. However, higher number of human resources also means higher expenses for large corporates. The Covid-19 outbreak, in some ways, can be said to allow large corporates and multinational companies to relocate their business operation to provinces/countries that prove to handle extraneous factors well. For example, we have seen a lot of companies relocating their production plants from China to Vietnam during the corona crisis.
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For more information on the above, please do not hesitate to contact the author Dr. Oliver Massmann under omassmann@duanemorris.com. Dr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC, Member to the Supervisory Board of PetroVietnam Insurance JSC and the only foreign lawyer presenting in Vietnamese language to members of the NATIONAL ASSEMBLY OF VIETNAM.