Interest in mergers and acquisitions (M&A) continued growing in Vietnam in 2009 despite the decline in deal volumes and values in the last quarter of 2008, especially with respect to inbound activities flowing over into the first half of 2009. According to the latest review by PricewaterhouseCoopers (PwC), the total number of deals in 2009 was 295 with total value of $1.138 billion. Numbers increased 77 per cent compared with the previous year but value increased just 2 per cent. 

During 2009 the industrial sector accounted for almost a quarter of all announced M&A deals targeting Vietnamese companies, up from 15 per cent in 2008. The share of deal volumes attributable to the energy and power sector increased from 7 per cent in 2008 to 17 per cent in 2009, whilst that related to the financial sector fell from 22 per cent to 12 per cent. Despite the growth in the number of deals in the consumer staples sector, its share of the total fell from 10 per cent in 2008 to 7 per cent in 2009. 

The split in deal volumes appears to reflect a growing trend amongst major Vietnamese conglomerates to restructure their organisations, remove smaller competitors through M&A and expand their operations into new sectors of the economy. This led to the particularly high volumes in industrials, energy and power and materials. The decline in financial services deals largely reflects the global turmoil in the sector, which meant that deals in economies such as Vietnam were off the agenda for most major financial institutions. 

During the year there were more indications that the larger private companies, as well as certain state owned enterprises, are looking into regional expansion projects, including acquisitions, in order to invest surplus cash and grow their businesses. Information about these deals is limited at the moment but it is worth paying attention to developments in this field since it is likely to be a developing trend over the coming years. 

Perhaps the most significant outbound transaction during 2009 was announced in December, when the PetroVietnam Oil Corporation (PV Oil) signed a business transfer agreement with Shell Corporation. Under the agreement, Shell committed to transfer 100 per cent of its shares in its Lao downstream operation to PV Oil. The acquisition of Shell’s Lao operations is one of PV Oil’s first moves in developing a regional market expansion strategy. 

There is a strong feeling that the worst of the challenges brought about by the global economic crisis and local economic overheating is behind the country, although some concerns persist in relation to the stability of the Vietnam dong due to balance of payments deficit issues, and in relation to inflation. Independent analysts expect that GDP growth in 2010 will reach approximately 6 per cent. 

PwC experts expect continued growth in deal activity in all categories, with deals between domestic companies continuing to accelerate as growing Vietnamese corporations look for M&A targets in which to invest their cash surpluses and facilitate further growth. Inbound strategic acquisitions as well as private equity deals are also viewed as following a positive trend in 2010, fuelled by global economic recovery and the positive sentiment brought about by Vietnam’s ability to continue to grow at strong rates despite the recent crisis. In addition it is particularly important to highlight that the government specifically indicated in the first week of January its intention to resume the equitisation process during 2010, which may lead to some larger deals occurring during this year. 

Another important government initiative that may have considerable impact on the deal environment in 2010 is the expected consolidation of various state owned enterprises due to the need to rationalise operations and improve exporting competitiveness to decrease the trade deficit. For example, according to the Ministry of Agriculture and Rural Development, during the month of January three major state owned seafood producers will merge to form the Vietnam Seafood Corporation (after textile products and crude oil, seafood is the third biggest export product category for Vietnam). 

Domestic demand oriented companies in the fast moving consumer goods (FMCG) sector will continue to attract the most attention from those private equity funds that are not infrastructure/real estate focused and from strategic investors interested in accessing sectors likely to see ongoing rapid rates of growth. Recent investments in the Masan Group Corporation during 2009 were indicative of this trend. PwC would therefore expect significant numbers of M&A deals in this sector in 2010, with some of the larger Vietnamese corporations looking to bring in funding and/or strategic expertise to fuel further growth. Within the overall sector, the food and beverage industry is the one where the experts observe both rapid growth and a relatively large number of significant potential target companies, and this is therefore a sub-sector where PwC experts expect to see further major deals taking place.

The growth in the FMCG sector in Vietnam has had a flow-on effect on media spend and is encouraging greater investment in this sector with a number of inbound M&A transactions having been seen over the past two or three years. This is still an attractive and potentially high growth sector. According to PwC, there will further acquisitions by global players in this sector during 2010 as well as consolidation amongst the smaller local companies. As mentioned in our July report, according to the 10th annual PwC Global Entertainment & Media (E&M) Outlook, covering the years 2009-2013, in Vietnam the value of the entertainment and media market approximately tripled in the five years from 2004 to 2009. During the forecast period, the overall E&M compound annual growth rate (CAGR) of Vietnam is projected to be the highest in the world, at 16.7 per cent. The internet access market is expected to grow by 20.9 per cent (CAGR 2009-2013), advertising by 10.9 per cent, and consumer/end-user spending (excluding internet access) by 16.1 per cent.

After a quiet two years in this sector, 2010 may well see a rise in M&A activity as financial institutions everywhere regain confidence and look once again at expansion strategies in the more dynamic markets of Asia. Financial institutions from the Asia Pacific region, which have weathered the global crisis without too much turbulence, will continue to look to Vietnam as a key market for overseas expansion. In terms of targets, certain larger private joint stock banks remain without a strategic investor and will be looking to bring in the expertise of a major international bank, whilst smaller joint stock banks are looking for fresh capital injections in order to meet government capitalisation requirements. Consolidation in the banking sector has been much anticipated but has yet to materialise, but one feels that this has to happen soon if smaller banks are to be able to compete.

The insurance sector continues to attract overseas interest and a number of the smaller life and non-life companies are likely to be targets for strategic buyers during 2010, whilst the other financial services sector likely to see activity is securities trading/brokerage since the argument for consolidation amongst the smaller firms seems to be compelling.

Whilst the office, serviced apartment and hotel sector returns appear for the time being to have become less attractive, the condominium/villa sector and the second home market is still attracting strong interest and many private Vietnamese companies are likely to look to raise new funds in 2010 to take advantage of such opportunities, stimulating M&A in the process.

Industries that supply the FMCG and other sectors linked to domestic demand are also likely to see significant levels of M&A, particularly logistics. In addition, the ongoing need for massive capital injections into infrastructure in Vietnam is likely to stimulate M&A in this area, in particular for the power industry, where the government is calling for increased levels of foreign investment. 

Consolidation in the textiles manufacturing sector triggered by the global economic crisis may also impact on Vietnam with distressed sales of businesses brought about by smaller manufacturers being forced out of the industry. This represents an opportunity for larger textiles groups to add capacity quickly and potentially at low cost, as orders from major western buyers become more consolidated at a smaller number of major producers, requiring a rapid step up in output. 

The retail sector continues to attract a great deal of attention despite the ongoing concerns over legal restrictions. Vietnam’s growing middle class and their brand conscious attitude make the country an obvious target for the world’s retailers. However, in terms of M&A there appear to be few opportunities for global retailers to acquire existing businesses in Vietnam since there are only a small number of large, local retailers in existence and deals in this space are more likely to be private equity plays rather than strategic ones.

Lastly, the education sector continues to attract significant attention from international companies and private equity alike and is a field in which there are already a number of significant private Vietnamese companies and privately owned foreign businesses with critical mass which would be attractive as M&A targets.