Effectively apply M&A to go long distance

If applied effectively, M&A will help businesses strengthen their internal resources for long-term development

Trend of seeking foreign capital

Sharing at the conference "Consumer goods and distribution industry: M&A trends and investment strategies to raise capital for Vietnamese enterprises", organized by the Business Association of High Quality Vietnamese Goods and the Leading Business Club (LBC). Recently, Dr. Nguyen Tuan Anh, RMIT University Vietnam, said that If 3 years ago, domestic investors dominated Vietnam's M&A market, in 2023, the top 5 most valuable deals will belong to foreign investors. According to KPMG data, in the first 10 months of 2023, the total value of M&A transactions in Vietnam is 4.4 billion USD with more than 260 deals, of which 80% of transaction value is from the industries of health, finance and real estate.

Dr. Nguyen Tuan Anh said that the excitement in the M&A market is partly caused by businesses themselves. When domestic capital is tight, businesses are forced to restructure, sell assets and call for investment to resolve financial pressures.

According to Dr. Nguyen Tuan Anh, the fact that foreign investors dominate the M&A market may be a sign of the market shifting from opportunistic investment to long-term strategic investment in strong and selective industries. Accordingly, M&A deals will continue to be exciting in 2024 and investors will target businesses with stable and long-term product investment strategies in the agriculture and food industry. In addition, they also keep an eye on fields such as real estate and construction if priced cheaply.

Economic expert Pham Chi Lan said that capital plays a very important role for businesses to invest in business and develop. Many businesses have been operating for many years and have achieved certain successes, but if they continue to follow the same path, they will not guarantee success in the future. Therefore, businesses need capital to reach new heights to ensure competitiveness. Accordingly, seeking capital from outside is a big trend of Vietnamese businesses. Because domestic capital is available but expensive, capital costs are high compared to surrounding countries, not to mention developed countries. Even though capital is available, how to mobilize and allocate capital to businesses is still difficult. Ms. Lan also pointed out that, compared to domestic capital, external capital also comes with other factors such as technology, skills, management, market, and taking advantage of FTAs that Vietnam has signed.

According to Ms. Lan, finding new investors and finding investors from outside is what Vietnamese businesses need. Accordingly, macro policies need to better support businesses to easily access external capital and help improve the position of Vietnamese businesses in the M&A process. “But this is also something I worry about. The number of businesses ceasing operations from the end of last year to the beginning of this year is still increasing. If businesses receive timely capital support, they will not fall into this situation" - Expert Pham Chi Lan said.

Call for capital, don't "sell yourself"

Lawyer Dao Tien Phong, CEO of Investpush law firm, said that many investors from countries such as Singapore, the US and China are also very interested in contributing capital or M&A with potential Vietnamese businesses. In particular, Chinese investors want to buy back all or part of the shares of businesses that own restaurant chains or manufacturing factories but have available orders to the US and Europe, like the garment industry.

Expert Pham Chi Lan also pointed out two types of M&A. Firstly, businesses look for investors to join hands to develop together for sustainable and long-term development. Second are businesses that want to "sell out" and withdraw from the market. In particular, Ms. Lan is very concerned about the second type of M&A. If businesses continue to pursue this trend, Vietnam's internal economic strength will be weakened. “Some Vietnamese products that have a certain position, both domestically and for export, may fall into the hands of foreign investors. We cannot have a medium or high economy if we are not self-reliant, but only rely on foreign investment. M&A in a way to strengthen the capacity of domestic enterprises, I support, but if it is in the way of 'selling yourself' to give the playing field to foreign investors, it is very worrying" - Ms. Pham Chi Lan said.

Lawyer Dao Tien Phong also assessed that most Vietnamese businesses are not thoroughly prepared when entering M&A deals, so they often fall into a passive position. Therefore, to avoid losing during the negotiation process, businesses need to prepare well and learn about the negotiating style of their partner investors so that the negotiation goes smoothly and both sides benefit. Besides, when planning M&A, businesses should have an equitization structure first for legal convenience and to avoid tax risks. Enterprises must also pay special attention to the "anti-dilution" strategy to avoid taking over the entire company, if only a part is intended to be sold.

Dr. Nguyen Tuan Anh recommended that the policy environment in Vietnam must be more favorable for divestment activities. Because when investing money, investors always think about getting it out. Another factor is how to shorten the time to complete the deal. On the business side, Dr. Nguyen Tuan Anh especially emphasized that ESG (environment - society - governance) will be a factor promoting M&A deals in the future.

From an investor perspective, Ms. Minh Huynh, Director of Tael Partners Fund, said: "When considering capital mobilization, businesses need to ask the questions: Why do we need to mobilize capital? What do I need from investors: capital, technology, management? Once investors join us, how will it change, how will we manage it, what will we expect? Enterprises must answer all of these questions before considering inviting investors to contribute capital." Besides, to attract investors, investment funds, production and business enterprises need to restructure corporate governance activities, business strategies, market orientation, brand building... At the same time, repositioning the business ecosystem in the context of domestic and global market developments in the short, medium, and even long term.