Consumer goods, property most attractive sectors for acquisition in Vietnam

Food and beverage (F&B) tops the list followed by pharmaceuticals and real estate in joint second position and fast moving consumer goods, KPMG said in its latest outlook report for M&A released at the Vietnam M&A Forum (MAF) 2018 in HCMC last week.

The firm came up with the report following a survey of more than 300 professionals working for private equity firms, securities companies and M&A advisory firms besides company owners.

F&B takes the lead thanks to a booming young middle class, stable economic growth of 6.5 percent and increasing exposure to new concepts and cultures especially influenced by globalization.

As for pharmaceuticals and life sciences, the survey found that while some foreign companies in this industry could see M&A as a faster means of obtaining the necessary licenses in Vietnam, several other arguments were also made in support of this trend: such as the government’s plan to simplify licensing policies and reforming regulatory frameworks, and the increasing demand for healthcare.

Besides, the country’s rapid urbanization rate means the real estate sector will continue to remain a magnet for investment, especially the residential and hospitality segments.

A report of the MAF 2019 stated that foreign investors in the consumer goods sector do not just have an eye for local brands but also their distribution networks.

“Thai and South Korean investors have expressed interest in Vietnam’s consumer goods sector since M&A deals will help them access established channels to distribute Thai and Korean goods in the Vietnamese market,” said the report.

As for the real estate sector, it noted foreign investors are interested in M&A because it often takes long to complete procedures for new real estate projects in Vietnam, and acquiring local firms would be a shortcut.

Besides, the availability of land for new projects is limited, with local firms already buying up most of them, making it difficult for foreign investors to strike out on their own.

MAF 2019 data showed that the total M&A value in Vietnam last year was $10.2 billion, the highest ever and 175 percent up from 2016.

In the first six months of this year the figure was $3.55 billion, up 55 percent.

Consumer goods and real estate accounted for the biggest slices of the M&A pie last year, with 57 percent and 27 percent, respectively.

In H1 this year real estate surged to the top, accounting for 66.75 percent, followed by finance-banking with 19.06 percent.

Experts at the forum said this year the M&A value could be lower at $6.5-6.9 billion.

Last year it had been boosted by the biggest ever divestment deal in the country when Thai Beverage paid nearly $5 billion for a 54 percent stake in Vietnam’s top brewer Sabeco.

KPMG’s survey found that Japan, South Korea and China would continue to be the top sources of M&A deals in the next three years.

Warrick Cleine, chairman and CEO of KPMG in Vietnam and Cambodia, said the wave of investments from Asia into Vietnam would be huge and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) that Vietnam signed in March with 10 other Asia-Pacific countries would make Vietnam's market even more attractive to investors from Japan and South Korea.

Deputy Prime Minister Vuong Dinh Hue told the forum the government is amending and finalizing policies related to management of state-owned equity.

The government will continue to push with its equitization of state-owned firms and tighten up rules to ensure those that have already launched IPOs list on the stock market, he said.

The government is seeking to make things easier for investors. “The target is to cut 30-50 percent of business procedures within this year. Now 15 percent of such procedures has been axed. We will do the same with specialized inspection procedures to improve the investment environment in Vietnam to make it easier for the establishment of new firms as well as M&A activities,” the deputy PM added.

Pham Van Thinh, CEO of advisory firm Deloitte Vietnam, said as the government continues to facilitate foreign investment and make the economy more open, Vietnam would remain an attractive market for the next five to 10 years.

However, as most companies in Vietnam are small or medium-sized, which means many of them do not have strategic policies for long-term development, there is not much scope for strong growth in M&A in future, he said.

Dominic Scriven, executive chairman of Dragon Capital, one of the top investment funds in Vietnam, said he is optimistic about the M&A prospects in Vietnam.

But he noticed three factors that should be sorted out to bolster the M&A landscape: the government’s policy to attract foreign investment, a change in attitude of local firms many of whom still want to handle everything themselves and do not look at M&A as a solution to become stronger and how effectively Vietnam can handle possible disputes between partners in M&A deals.