Foreign capital set to dominate Vietnam’s M&A landscape

Experts suggested that foreign investment will continue to be a key driver in Vietnam’s mergers and acquisitions (M&A) market, due to the high cost of domestic resources and the perception of many foreign investors of the numerous opportunities available.

In response to Vietnam's growing demand for clean energy, G&P LNG - a subsidiary of Nebula Energy (US) - has acquired a 49% stake in the LNG port at Cai Mep in Ba Ria - Vung Tau Province. This was confirmed over the weekend by the project's investor, Hai Linh Company. The port, valued at $500 million, is currently undergoing trial runs and is expected to be operational in the third quarter.

Prior to this energy sector deal, the Vietnamese M&A market witnessed the transfer of 100% ownership of Home Credit Vietnam to a Thai bank for an estimated  $865 million, which is expected to be completed by the first half of next year.

VPBank's sale of a 15% equity interest to Sumitomo Mitsui Banking Corp. of Japan in 2023 was among the largest in Vietnam's banking sector.

The expected influx of foreign capital into the M&A market this year follows the momentum of 2023 when the top five largest deals all involved foreign investors. According to data from the Ministry of Planning and Investment, the country recorded over 3,450 capital contributions, share acquisition, or capital contribution transactions by foreign investors worth over $8.5 billion last year. This figure represented a nearly 66% increase compared to 2022.

Speaking at an M&A workshop held on March 12, Dr. Nguyen Tuan Anh, a finance lecturer at RMIT University, predicted that the dominance of foreign capital would continue. "Foreign investors dominating the market is a long-term trend," he said.

Anh noted that this dominance stems from the needs of both buyers and sellers. According to KPMG Vietnam, foreign businesses are showing signs of shifting from opportunistic investments to long-term strategic ones in strong and selective sectors. Additionally, Vietnam's favorable position in the supply chain and its large population size are attractive factors, Anh said.

"Indonesia and Vietnam are the 'destinations' for investors coming to Southeast Asia. In the trend of relocating factories from China, Vietnam is benefiting from its proximity and numerous free trade agreements (FTAs) signed with other countries," commented Huynh Thi Binh Minh, Director of Tael Partners Fund.

Investors from Japan and China are seizing opportunities as well. Following the billion-dollar deal in the financial sector between SMBC and VPBank, Sojitz Vietnam also acquired all the stakes in New Viet Dairy, a major importer and distributor of food and food ingredients in Vietnam.

"The depreciation of the yen over the past five years has been a major incentive for Japanese companies to invest overseas, with Vietnam being a safe choice," said Dr. Anh. According to KPMG Vietnam, as of the end of October 2023, Japanese investors led the M&A market by pouring $1.6 billion into Vietnam.

Lawyer Dao Tien Phong, CEO of InvestPush Consulting Firm, noted that Chinese investors are also interested in M&A activities in Vietnam, particularly in manufacturers with existing orders from the US and Europe.

"In the southern region, investors prefer M&A to direct investment to avoid the time-consuming process of building factories and meeting environmental and fire safety requirements," Phong explained. Sellers also favor foreign capital.

Economist  Pham Chi Lan believed that seeking external resources is a trend and often more feasible than domestic capital for some businesses. "Domestic capital costs remain relatively high and inaccessible. Additionally, businesses need additional technology, management skills, and market opportunities, hence the turn towards seeking external capital," Lan remarked.

Forecasting the future trend of the M&A market, Dr. Nguyen Tuan Anh stated that investors will target companies with stable and long-term product strategies in the agriculture, food, healthcare, and education sectors.

Lawyer Dao Tien Phong added that industries currently attracting foreign capital include distribution and new technologies. Sellers will have an advantage if they have adopted ESG (environmental, social, and governance) strategies, which focus on sustainable development.

However, Minh from Tael Partners Fund recommended that companies seeking capital should hire professional financial advisors to review their business results and assist in developing 3-5-year strategies. The fee for these services is approximately 2% of the transaction value, lower than larger deals. According to her, financial advisors also act as intermediaries in finding buyers for businesses. "Choosing the right advisor will prevent unnecessary disclosure of business information to unwanted buyers or competitors," she emphasized.