M&A in technology booms during pandemic
The Mergers and Acquisitions (M&A) market in Viet Nam has been going through a downturn due to the pandemic, but the technology sector is bucking the trend.
The seminar on "Digital transformation and M&A trends in the technology sector in 2022" was jointly held by Nha dau tu Magazine and Nova Group on January 11. — Photo itcnews.vietnamnet.vn
Nguyen Cong Ai, deputy director of KPMG Viet Nam, noted that technology sector was becoming more appealing to foreign investors. In 2021, technology M&A doubled in transaction volume and tripled in value, reaching about US$963 million by October.
Sub-sectors that have been attracting strong investment inflows include e-commerce, fintech, ed-tech, logistics and digital transformation.
Tiki has sucessfully raised $258 million in a funding round led by AIA Insurance; Sky Mavis $152 million by Andreessen Horowit; and Momo $100 million by Warburg Pincus.
“Foreign investors are showing great interest in Viet Nam’s technology sector. Recently, we have been receiving an increasing number of requests from Korean and Japanese investors who are interested in Viet Nam’s internet economy, fintech, edtech and media,” Ai added.
The deputy director believes foreign interest in technology can be mainly attributed to favourable policies of Vietnamese Government on tech startups. Another contributing factor is the quality of human resources, which has been improving substantially in recent years.
Nguyen Viet Khoi, director of Institute of Skills Education and Creative Intelligence, said Viet Nam’s digital economy had been forging ahead over the past few years. Rapid growth could be observed in information technology (IT), telecoms, e-commerce and startup ecosystems.
Remarkably, 5,600 new digital firms, with nearly one million personnel, were established last year, raising the total number of digital firms to over 64,000 and marking a 9 per cent growth in the sector.
Such a steady expansion has allowed the technology market to draw in massive foreign investment and multiply M&A transactions.
However, digital firms in Viet Nam are still at an early stage. A majority of them are startups with original ideas but have trouble with management and strategic planning.
Meanwhile, investors with deep pockets prefer putting money in firms that can draw up a detailed plan to realise their ideas.
This mismatch between investors and investees is causing a setback for M&A growth.
To deal with the setback, Khoi said the grow-at-all-cost model was indispensable. Additionally, trading floors for startups, which are similar to ChiNext (China), KONEX (Korea) or NASDAQ (US), could be developed to facilitate startup funding.
The director also recommended the Government launch a regulatory sandbox to provide digital firms with testing grounds for their technology innovations.
Regarding M&A in IT, Nguyen Thanh Tuyen, deputy director of the Ministry of Information and Communications' Department of Information Technology, revealed there was no significant M&A in digital technology in Viet Nam prior to 2015.
It was between 2015 and 2018 that first major transactions in the sector began to emerge, notably VNG seizing a 38 per cent stake in Tiki and the buyout of Mundo Reader by Vingroup.
From 2019 to 2021, Viet Nam saw a sharp upturn in M&A with many noteworthy deals including Vision Fund and GIC Fund pouring $300 million to VNPay, Temasek’s investment of $100 million to Scommerce, and the buyout of Base platform by FPT.
As the COVID-19 pandemic has been paving the way for the widespread application of digital technoloy, M&A in this sector will continue to boom in the next several years. Sub-sectors that are likely to become investment magnets include e-commerce and fintech.
Despite the positive outlook for M&A, Tuyen said that most products and services of Viet Nam’s tech firms only targeted the domestic market. Few seek customers abroad.
Such a narrow market reach is a setback for the rapid growth of M&A.
Ho Phi An, chief executive officer of EI Industrial, believes the rapid growth of M&A in technology is good news for the sector. Through M&A, digital firms will be able to tap into abundant sources of foreign funds.
The downside is that firms are more vulnerable to hostile takeovers as soon as they are open to M&A. However, growth always comes at a cost, so the risk of a takeover should not be a matter of concern.
“We should not be concerned with hostile takeovers when we participate in international markets. It’s quite normal for a firm to be taken over if it is not good enough,” An added.
Bui Thu Thuy, deputy director of Enterprise Development Agency under the Ministry of Planning and Investment, acknowledged that the legislative process in Viet Nam was quite lengthy. It takes 5-7 years to develop a fully-fledged legal framework, so Government policies normally cannot keep up with the pace of change.
Additionally, the practice in some countries that financially supports 100 per cent of startups' initial costs or accept a failure risk of 20 per cent is unsuitable for Viet Nam currently.
"Our current financial situation does not allow such a practice and we cannot accept such a high risk either," Thuy said.
The deputy director said the authority would come up with favourable policies for digital firms and startups, but financial support would require cooperation between agencies and assocciations across the board. —