Vietnam’s M&A Market: An Overview
May 31 – Following two major laws concerning M&As in Vietnam which came into effect almost five years ago, namely the “Law on Investment” and the “Competition Law,” the number of M&A deals in Vietnam has surged from 38 in 2006 to 108 in 2007 according to Reuters, and from US$299 million to US$1.72 billion over the same time frame.
M&As declined in value in 2008 as a result of the Global Financial Crisis, barely reaching US$1.12 billion in 167 deals, and experienced a feeble recovery in 2009. But the M&A market picked up again in 2010 both in volume and in value with 345 M&As worth US$1.75 billion and, according to forecasts, the transactions should keep on flourishing this year.
In 2010, the main sectors for M&A transactions were finance and real-estate. While the real-estate sector is slowing down in 2011, the banking and finance sector is to remain among the key sectors for M&As. The infrastructure sector is also an emerging player in the field, as the government wants to improve public infrastructure through private investment.
Under the Vietnam Investment Law, M&As are one kind of direct investment, but still, they can be a way of implementation for various strategies in several sectors.
“M&As are an effective investment channel, a leading way to participate in the market and a solution for restructuring and increasing the revenue,” said Minister of Planning and Investment Vo Hong Phuc.
Thus, they are meant to become a major external growth strategy both for Vietnamese and foreign companies and will remain a good market entry strategy for foreign investors. As a result, cross-border deals are predicted to increase greatly in 2011, mainly in the form of capital transfers and purchasing of shares.
In 2010, the Vietnamese M&A market reached maturity, gathering deal-making conditions (cash, credit and confidence); this can partly explain the boom in M&A transactions, but it is also due to a realization by the Vietnamese companies. In fact, by realizing that maintaining the status quo cannot be a solution, companies in Vietnam have become more likely to take the initiative and undergo changes in order to ensure their long-term growth, considering mergers, and even acquisitions by foreign companies.
This trend is of course also related to the fact that M&As present many advantages. Among those benefits, M&A strategies allow the main company to increase its capital, to expand its influence, to multiply its market shares and to access new technologies. On the other side, M&A deals can also be an opportunity for ailing companies; they can thereby avoid bankruptcy, renovate or restructure their business and increase their resources for development.
Although Vietnam’s M&A market is moving in the right direction, the situation is still not optimum. Indeed, while the fiscal policy is expected to remain conservative this year, trade experts agree that changes are needed to create legal foundations for M&A deals. Also, for reasons related to the economic situation in the European Union and the United States, it seems that potential foreign investors are quite unadventurous for the time being, waiting to see how the situation develops.
Dezan Shira & Associates is boutique professional services firm providing foreign direct investment business advisory, tax, accounting, payroll and due diligence services for multinational clients in Vietnam. To contact the firm, please email email@example.com, visit www.dezshira.com, or download the firm’s brochure here.
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