M&A market has cooled down during Covid-19 period

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Data on M&A activities since mid-2019 showed that real estate, finance - banking, industry, retail, logistics, agriculture, pharmaceutical - health, and construction are the main sectors attracting M&A deals. Photo: Internet

M&A activities plunged

In the context of global investment decline, M&A activities have also witnessed a sharp decline since the beginning of the year.

Accordingly, the total value of global M&A activities in the first six months of 2020 is $901.7 billion, 52% lower than the same period last year. Particularly in the Vietnamese market, if the total value of M&A deals in 2019 reached$7.2 billion, by 2020, it is expected that the M&A value will continue to decline, estimated at $3.5 billion, equal to 48.6% compared to 2019.

Another reason for the decline in M&A activities this year is that the equitization and divestment process in 2019. In the first nine months of 2020 it has continued to be quiet and has not been implemented as planned.

The market is expected to have more large-scale divestments, in order to help increase the value of M&A in Vietnam.

“The Covid-19 pandemic and its new normal status have an impact on M&A activities globally as well as in Vietnam. Investors and businesses have adjusted their strategies, increased restructuring activities, the need to sell businesses increases, but the detailed appraisal and decision making is also more difficult,” Mr. Le Trong Minh, head ofthe Organizing Committee of Vietnam M&A Forum 2020, said.

Regarding M&A activities involving foreign elements in 2020, Mr. Do Van Su, Deputy Director of Foreign Investment Department, Ministry of Planning and Investment (MPI), said the number of M&A deals of foreign investors entering Vietnam fell sharply. Accordingly, the value of M&A deals between foreign investors and domestic enterprises is only 40% of the previous year in value and the number of deals also decreased by 50%.

According to Mr. Do Van Su, the peculiarity of these M&A deals is the inflow of capital from outside the border.However, the restriction of travel between countries has been reducedfor nearly ten months now,meaning people as well as machinery cannot be moved, which directly limits market research and purchase and sale decisions. Most of the deals made this year are those that have been investigated before.

The Ministry of Planning and Investment’sdata also shows that, in the firstten months of 2020, there were5,451 instancesof capital contribution and share purchase by foreign investors with a total capital contribution of $6.1 billion, a decrease of 43.5% compared to that of last year.

In the total number of capital contribution and share purchase instancesof foreign investors, there werenearly 1,400 instancesof capital contribution and share purchase to increase the charter capital of the enterprise with the value of capital contribution of nearly $2.5 billion and 4,059 turns of investors. Foreign investors bought back domestic shares without increasing charter capital with a value of more than $3.6 billion.

According to experts, the Covid-19 pandemic with border closures in many countries is slowing down M&A activities in Vietnam. However, in the long term, the pandemic will cause the market to explode with increasing demand from both sellers and buyers. Mr. Do Van Su also emphasized that Vietnam is expected to be the destination of foreign capital flows in the process of investment shifts, especially in a year when there are a series of big fluctuations that have been happening.

M&A activities will break out in 2021

Data on M&A activities since mid-2019 showed that real estate, finance - banking, industry, retail, logistics, agriculture, pharmaceutical - health, and construction are the main sectors attracting M&A deals.

In the market, foreign investors are still in the leading position, in which investors mainly come from four countries including: Japan, Korea, Thailand and Singapore.

However, a remarkable point is that the proportion of M&A value in which Vietnamese enterprises play the role of buyer is tending to increase.

According to Ms. Pham Mai Huong, Director of KPMG Vietnam's Financial Advisory and Business Purchasing, in the first months of 2020, the number of customers coming to learn and exchange didnot decrease, especially in infrastructure and real estate. In addition, in the retail segment, the production of essential consumer goods also received attention, along with the production of raw materials, export products with good export potentialwerealso researched.

Regarding M&A activities in the real estate sector, Ms. Nguyen Thi Van Khanh, Senior Director of Vietnam Capital Market, Jones Lang LaSalle Vietnam (JLL), said the consulting process for real estate projects is currently affected by the bad debt of the bank, JLL noted that foreign investors are very interested in these bad debts. However, in a number of recent deals, there have been process barriers leading to a large gap between the bank is the seller and the investor is the buyer, so the two sides have not met.

According to the representative of JLL, many domestic investors have purchased bad debts and have a high success rate.

However, the bad debt acquisition ascollateral of the banks is much more difficult for foreign investors.

Besides investing in new projects, mergers and acquisitions will be an important part of the investment activities of foreign investors in Vietnam. Commenting on the prospects of M&A in the future, Mr. Do Van Su said that although the data showed the slowdown of the M&A market, with the trend of investment shifting, researching enterprises foreign investors' domestic market is now like a compressed spring and is the premise for a boom in 2021.

Receiving the M&A capital flows, the representative of JLL Company said that the big challenge forVietnam is transparency in corporate governance and the legality of the project, because the reputation of the business and the legality of the project are issues that are of great concern to foreign investors.

"If enterprises can meet those criteria, M&A activities will rise in 2021 and the following years," said Ms. Nguyen Thi Van Khanh.