Looking back on the M&A market in 2017 and forecasting the trend for next year, TheLEADER has a talk with Mr. Nguyen Quoc Viet, Deputy General Director of Vietnam AVM, co-organizer of the annual M&A Vietnam Forum.
Investment and Trademark: What do you think about the M&A market in 2017?
Mr. Nguyen Quoc Viet: Although there is no official statistics, the picture of M&A market in 2017 is generally lower than 2016 both quantity and value of business affairs. The billion dollar business affair in 2017 also fell significantly compared to last year.
The main trends in the market are fields such as fast consumer goods (food, beer, milk) retail, real estate. In particular, some big business affairs, worth mentioning include Thai Beverage spent 4.8 billion dollars to buy 53% Sabeco stocks, JCC spent 1 billion dollars to buy 10% Vinamilk stocks, China Fortune spent 65 million dollars to buy 100% Vina Dai Phuoc stocks...
In addition, in 2017, Thai investors remain the most prominent in the M&A market in terms of transaction value due to its proximity to the geography and culture. Trends in these investors continue to be a concern in the retail, beverage, packaging and cement sectors. Japanese investors are interested in food, packaging, construction, finance and real estate.
In the past year, the accelerated divestment of enterprises of State has created motivation for large M&A business affairs. At the same time, transfer activity in private area tend to decrease due to the lack of sources of goods with full of size, quality and attraction for investors. The process of dealing with complex long-drawn-out procedures is the main reason that hinders the transfer.
Can you explain why the 2017 M&A market is lower than in 2016? Will this trend continue in 2018?
Mr. Nguyen Quoc Viet: The main cause of this decline is that in 2016, the private sector has recorded many M&A projects with great value such as the transfer of BigC, Metro. Meanwhile, in 2017, there are not so many big business affairs, so the value and number of M&A business affairs are decreasing.
In addition, after a period of effervescent development, the number of companies of sufficient size and quality to attract investors also decrease. Sources of supplying goods at private areas tend to remain due to the strong brands that have been predominant in the past.
Therefore, the market needs time for new businesses to grow large enough and become a target acquisition of investors.
Of course, with small and medium enterprises, there are some investors who are interested but the transfer value is not much so there is no big impact on the market.
In addition, the State is still holding large shares in leading companies such as Vinamilk, aviation ... Therefore, the operation of M&A is growing strongly or not in the future also depends a lot on The State's determination to divest these companies.
But the foundation for continuing the growth of M&A market such as economic growth, political stability, reasonable labor costs, rising middle class, improved business environment, process divestment of Enterprises of State and the development of the private sector continue to be accelerated. These will be the basic factors, promoting M&A activities in 2018 continue to develop steadily.
According to you, what is the trend of M&A investors are interested and have the opportunity to break out strongly in the future?
Mr. Nguyen Quoc Viet: Firstlly, investors are interested in divesting enterprises of state. In any field, these enterprises only need a stable market share, a long history of growth, asset value, and trademark, especially with good growth prospects. The investors will participate, even accept high prices provided the opportunity to develop.
Secondly, investment enterprises tend to want to dominate the business after M&A. Therefore, for those enterprises that do not divest their capital or just divest some of their capital, investors will be less likely to participate.
In the coming time, investors will be able to see clearly the "taste" of the market segments such as retail, consumer goods, education and building materials.
The reason is that these products are directly supplied to the market, occupying a large market share, meeting the essential needs of the people. Especially for foreign investors, they like the retail sector, offering products to end customers.
These are the sectors that can clearly see growth, as they want to penetrate Vietnam's 90 million people market through these companies after the transfer. Therefore, it can be said that by the transfer price they will also accept. The case at Sabeco is an example. In contrast, manufacturing industries that have to compete directly with exports are not attracted by the investors.
According to many opinions, it is said that the current foreign investors dominate the M&A market is the potential risk that Vietnam will lose many national product brands, how do you consider the problem this?
Mr. Nguyen Quoc Viet: I think that for M&A the problem is not so or not but to consider it as a rule of the market. Enterprises that operate to a certain level are no longer effective, business goes down or are no longer capable of growth anymore should think of selling solutions or accept losing control to let enterprises to have new growth bring higher efficiency.
Besides, M&A is not the purpose but the implementation tool. So do not put too much emphasis on the value of business affairs but consider the quality of business affairs after the transfer. Enterprise value has been increased, consumers have benefited? That is the most important thing.
The assessment of the effectiveness of an M&A business affair as well as the performance of this market need to look at the financial aspect. The amount of money that comes after each business affair is much greater than the amount of profit when we keep the enterprise.
Sabeco divides dividends for 2-3 thousand billion dongs a year, while assuming that if the capital is divested, the state will receive $ 10 billion. With this amount, if Vietnam borrows from foreign, the interest payable is much higher than the dividend received.
Of course, there will still be the loss that public opinion wonders as the national brand of beer. But this is only a mental issue, but ultimately must still consider the plan to bring efficiency to the economy, broader than effective for the society. Foreign companies in the acquisition of Vietnamese companies can help businesses better governance, bringing more value to society. And finally, consumers benefit from having more choices with better quality products.
The most worrying issue here is that these companies control the market, exclusively, increase the selling price after the transfer. However, in my opinion, this is not worrying because the competition in the market today is very large, furthermore State has mechanisms to manage this problem.
What do enterprise in the country need to do to improve their competitiveness in the M&A market?
Mr. Nguyen Quoc Viet: In order to compete with foreign enterprises, domestic investors should bring into full play their advantages in understanding the market, culture and characteristics of Vietnamese consumers. .
At the same time, investment for development, enhancing the competitiveness from the internal strength of enterprises, improve governance in the direction of transparency, efficiency
In addition, the State should create more conditions for domestic investors to participate in big business affairs such as bank loan support, priority on selection criteria for strategic investors in the country to facilitate the domestic enterprises to participate in M&A.
In your opinion, what solutions do we need to solve the challenges as mentioned to promote M&A business affairs in the future?
Mr. Nguyen Quoc Viet: In my opinion, in order to promote M&A activities, the State needs to have breakthroughs on policies, investment procedures, information transparency and even more drastic in divesting companies of State.
On the other hand, when famous enterprises of State have completed the divestment and sale to strategic investors, the role of the private sector is critical to determining the supply of M&A. Therefore, the State should promote and create conditions for the private sector to develop, as the motivation for long-term economic growth.
Thank you very much!