While the global recession has been louder, merger and acquisition (M&A) activity in Vietnam has slowed from its record-setting pace in 2021, with the overall number of deals in 2022 falling by 3 per cent from 142 to 138 compared to 2021. Nevertheless, deal value maintained its upwards trend in 2022, with the overall M&A deal value reaching $5.7 billion, a 6 per cent rise from 2021’s projections (Mergermarket). Global volumes and values fell 34 per cent and 39 per cent, respectively, compared to the previous record. Thus, 2022 remains one of the most prosperous years for Vietnam’s M&A market in the context of global economic decline.

Significant deals in 2022

Swire Coca-Cola Limited, a subsidiary of Swire Pacific Limited, acquired Coca-Cola Beverages Vietnam Limited for $1.01 billion in 2022, bolstering its foothold in the Southeast Asia region.

Masan Group’s acquisition of a 65 per cent stake in Phuc Long Heritage for $260 million brought its ownership to 85 per cent and was notable in the Food & Beverage industry. This transaction enables Masan to strengthen its goal of branding Phuc Long as the leading tea and coffee chain in Vietnam over the next few years and expanding its international footprint in 2024.

Other major transactions included Tasco’s $430 million acquisition of SVC Holdings and Techcombank’s $410 million acquisition of a 5.4 per cent share in Techcom Securities.

In the uncertain market of 2023, bond transactions involving M&As are seen

The combination of the Vietnamese Government’s efforts to limit Covid-19’s impact and pro-FDI and economic growth policies resulted in a rise in deals in 2021. In 2022, however, M&A buyers became more cautious with their cross-border investments and demanded a greater rate of return due to continuous tensions between Russia and Ukraine and the risk of rising inflation and interest rates worldwide.

As headwinds intensified in 2023, we anticipate equity market volatility as well as an increase in the cost of financing, which will lead to a growing fear of a recession. Despite this, a high probability of corporate undervaluation will result, creating attractive investment opportunities for foreign investors.

Vietnam presents itself as a rising star regionally and worldwide for M&A activities due to its strong GDP growth, stable economic and political climate, quick digitization rate, and growing number of tech startups despite these hurdles. Vietnam is predicted to attract $36-38 billion in FDI in 2023, up from $22.4 billion in 2022. (Foreign Investment Agency). The Vietnamese Government’s measures in strengthening the business environment, prioritizing ESG-related projects, building investor confidence, and equitizing State-owned enterprises (SOEs) have revitalized the M&A market.

Meanwhile, global corporations continue to be concerned about geopolitical conflict. The Russia - Ukraine conflict caused supply problems and high costs for certain commodities, prompting businesses to reconsider their sourcing strategies. Furthermore, Covid-19 lockdowns in China have disrupted supply chains, causing businesses to seek alternate suppliers.

As multinational corporations diversify their supply chains away from China and relocate their production to other countries, Vietnam becomes one of the perfect choices. This includes Apple and their suppliers, Foxconn and Goertek transferring production to the province of Bac Giang, Nintendo shifting manufacture of its Switch console to Vietnam, and Lego constructing a $1 billion factory in Vietnam to follow their supply chain strategy.

With this view for 2023, the M&A market in Vietnam is likely to continue solidly, with both strategic investors and private equity companies showing a growing interest. Foreign strategic investors, especially those from Thailand, Singapore, Japan, and South Korea, have been aggressively investing in Vietnam’s M&A industry to increase their market share and diversify their operations.

Some strategic investors want to form joint ventures or partnerships with Vietnamese companies in order to gain access to local expertise and networks. Private equity investors are attracted to Vietnam’s M&A market due to the country’s excellent growth potential and favorable demographics, as well as their desire to gain access to high-growth sectors and diversify their portfolios.

As significant SOEs in Vietnam undergo restructuring and an increasing number of private companies seek to obtain cash, private equity firms have ample investment prospects.

Industrial concentration during this difficult period

Vietnam’s M&A 2022 landscape has displayed continuing interest from global and domestic investors in comparable investment patterns since 2019 despite persistent concerns about a probable economic crisis in the future. Diverse transactions have occurred in the consumer products and retail industries over the past few years, with the $90 million investment by Quadria into Con Cung, a rapidly expanding mom and baby store network, in 2022 standing out.

In 2023, these industries will continue to be able to attract a range of M&A deals due to key developments such as the increase of the middle to high-income class and the shifting customer demand for speedy services and convenient payment methods. This trend also accelerates the digitalization of the financial services and logistics industries, which continues to attract significant interest from foreign investors and generates a plethora of opportunities for business transactions.

Aside from traditional sectors, M&A operations in ESG (environmental, social, governance)-related areas such as renewable energy and agriculture have gained significance in Vietnam. One example is Leader Energy’s acquisition of Vinh Hao 6 Power, which bolstered the company’s position as one of the leading green energy players in Southeast Asia by adding over 1,000 MW of power generation to its existing portfolio.

Also, the agriculture business demonstrated steps towards sustainable food production and reducing its environmental effect. Mavin Group’s acquisition of $52 million  from the International Finance Corporation (IFC) to assist the expansion of its genetic pig breeding stock and farms in Vietnam is a clear illustration. In the next few years, local and foreign investors will continue to be drawn to these industries due to growing awareness about environmental and sustainable development.

Important factors for foreign investment

Before engaging in this vast but potentially rewarding endeavor, investors need to carefully assess a number of issues. The strategic compatibility and growth story of the target’s business are the most important factors. Investors are willing to pay a premium if the target firm demonstrates great financial performance and growth potential, or operates in a sector strategically aligned with the investors’ expertise.

Yet, an inflated value is typically viewed as a deal-breaker when there is a disparity between the expectations of sellers and purchasers. Sellers tend to be overly optimistic about their firms, overcharging without taking the risk of post-merger integration into consideration. Moreover, investors may have concerns over the management team’s propensity to conceal unfavorable facts on the company’s tax, off-balance sheet liabilities, and less transparent transactions, such as having two distinct accounting books.

Vietnamese businesses must strengthen their resource mobilization and use in order to be prepared for M&A deals. To prepare for an M&A, Vietnamese businesses must include it as a vital component of their growth strategy. It is vital to specify M&A objectives, extra support needs, M&A process selection, and target investor criteria. Due diligence is a vital element in the M&A process that must be prioritized in order to ensure the success of the deal.

Investors often focus on sound company governance, audited financial reporting transparency, and a five-year projection strategy. Incorporating ESG factors into the company’s overall strategy can also increase its appeal to investors. In addition, appointing a knowledgeable financial advisor is essential for a successful and seamless transaction.

The adviser can assist a seller in preparing for an M&A deal by offering direction and support, discovering suitable investors, presenting the firm in the best possible light, providing expert advice on negotiations, and managing the transaction process.

In conclusion, despite the possibility of an economic downturn and growing concerns about a recession, as well as ongoing geopolitical tensions, 2023 is anticipated to be a busy year for mergers and acquisitions in Vietnam, particularly in key industries such as financial services, consumer goods, retail, logistics, and renewable energy. Companies in Vietnam that properly comprehend investors’ motivations and adequately plan for M&A transactions will likely have a greater likelihood of success.