M&A deals could help VN businesses restructure amid pandemic

Merger and acquisition (M&A) deals will likely increase post-pandemic, which industry insiders see as a chance for enterprises to restructure their operations to be more viable.

A woman walks past a Vinmart+ in Ha Noi. A deal in which Masan acquired VinMart and VinMart+ from Vingroup helped Masan to expand its retail system. 

Data from the Foreign Investment Agency under the Ministry of Planning and Investment showed Viet Nam attracted nearly US$14 billion worth of foreign capital in the first five months of this year, down 17 per cent year-on-year. This figure included newly-registered capital, adjusted capital and capital contributions to buy equity.

There were 3,528 deals worth nearly $3 billion to buy the equity of companies, up 11.6 per cent in volume but down 59 per cent in value compared to the same period of last year.

Although the value of deals declined sharply, partly blamed on the coronavirus pandemic and falling value of companies, market insiders have predicted M&A activities will sharply increase soon.

Putting aside worries about being taken over at cheap prices, some experts have pointed out M&A could be a good opportunity for enterprises to restructure their operations, attract more capital to overcome the crisis and develop further.

Economist Dinh Trong Thinh said the COVID-19 pandemic had greatly impacted the whole economy and enterprises, especially those involved in import and export activities. Weak financial capacity has forced many businesses to seek M&A deals amid the pandemic which could be a good solution to have more resources and increase resilience to cope with uncertainty in the future.

According to Pham Xuan Anh, head of the Banking Investment Division at MB Securities JSC, M&A is an effective tool to reshape businesses and a way for firms to expand or narrow their operations to create greater value for shareholders, enhance governance and reduce risks.

Talking to thoibaoganhang.vn, Anh cited the deal in which Masan acquired VinMart and VinMart+ from Vingroup's retail arm to expand its retail system in 2019.

The deal was considered to benefit both sides as Masan can take advantage of Vingroup's national network to achieve its goal of becoming the leading domestic retail and consumer group while Vingroup can save resources for its core activity - manufacturing and technology.

Anh said firms could use M&A to focus on a key business. Many long-established European businesses have been known for one type of product, while Vietnamese businesses tend to invest across many industries, resulting in a lack of capital and resources to develop.

 

M&A when ready

However, Anh also said there are always risks in this activity, so businesses should seek M&A deals only when they are ready. If business leaders still see risks and are not confident enough, the deal will struggle to succeed.

He pointed out many factors for investors to decide whether to invest in the business or not, in which the quality of assets is crucial. Asset quality is the first thing that attracts investors to a business and this is also the strength on which business can negotiate better prices with investors.

Other important factors include intangible assets like the business culture and corporate governance which are often the weakness of small- and medium-sized enterprises, Anh added.

According to Baker McKenzie, despite a slowdown in global deal-making due to worldwide economic uncertainty, Viet Nam remains active in M&A in 2020. The US law firm predicted cross-border acquisitions to dominate M&A deals in the coming years, as the country’s solid fundamentals continue to attract overseas investors.

Viet Nam is being praised for its efforts to control the pandemic. In addition, the ratification of the trade pact between the country and the EU will offer businesses greater opportunities for trade and investment.

However, economist Dinh Trong thinh has warned about the risk that Vietnamese enterprises will be acquired by foreign investors for cheap prices.

He said the State authority needs to consider a number of sectors which are susceptible to foreign acquisitions and have an adverse impact on the economy if they are sold for strict management. —VNS

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