M&A gateway to firms’ growth and expansion

More and more foreign and domestic companies see M&A as an effective channel to fast-track their growth. (Photo:VIR)

Vietnam’s largest dairy producer Vinamilk has recently snapped up over 90 million shares of GTNFoods, which holds Moc Chau Milk, Vinatea, and Ladofoods brands. With the share price of VND13,000 ($0.56), the total value of the deal is VND1.171 trillion ($50.91 million). Following the deal, Vinamilk has increased its holding in the dairy producer from 2.32 to 38.34 per cent.

The move is significant as it reflects Vinamilk’s intention to milk the demand for dairy products in Vietnam amid unfavourable market conditions throughout 2018. According to its 2018 annual report, since the fourth quarter of 2017, the dairy industry had recorded negative growth, and there have only been signs of significant positive change only since the fourth quarter of 2018.

To battle the dairy industry’s slowdown in 2018, Vinamilk is ready for mergers and acquisitions (M&A) and expanding co-operation with partners. The company also prioritised M&A opportunities with dairy companies in other countries to expand its market and increase sales.

According to Bao Viet Securities, the offer to buy GTNFoods is one of Vinamilk’s first steps to consolidate its position in the local market. GTNFoods owns 74.5 per cent of the shares of Vietnam Livestock Corporation (Vilico), which in turn holds 51 per cent of Moc Chau Milk, an established dairy brand in the northern market, especially in rural areas. In addition, Moc Chau Milk has a herd of 23,000 cows, which could be the foundation for Vinamilk to develop high-end fresh milk products to serve the northern market and exports.

Rural and urban expansion

At the annual general shareholders’ meeting in May, Nguyen Hong Anh, Vilico’s general manager, was upbeat about the partnership. He said that it is a good opportunity for Vinamilk and Moc Chau Milk to take advantage of each other’s strengths and create synergies. He claimed the strategic partnership would help Moc Chau Milk to expand its distribution networks beyond the northern market to the central, south-central, and southern markets, laying the foundation for exports.

According to Tran Cong Chien, chairman of Moc Chau Milk, Vinamilk currently holds major market share in big cities, while Moc Chau Milk has an edge in the rural markets. The tie-up with Vinamilk will help Moc Chau Milk to expand its footprint in the southern market and increase sales of dairy products during the winter seasons in the north.

“Upon shaking hands with GTNFoods and Moc Chau Milk, Vinamilk can expand its raw material areas thanks to GTNFoods’ large land funds. Meanwhile, with Vinamilk’s strong financial capability, Moc Chau Milk can realise its dream of developing a herd of 100,000 cows by 2030,” he said.

Vinamilk and Moc Chau Milk are among the few Vietnamese dairy producers meeting the criteria to export to China. Both companies are preparing forays into the Chinese market following the signing of the protocol on the export of Vietnamese dairy products to China on April 26.

Robust domestic M&A drive

According to the report by Vietnam M&A Forum 2018, domestic investors are becoming more proactive in conducting M&A deals. The list of deep-pocketed Vietnamese buyers includes Vingroup, KIDO Group, Masan, REE Corporation, PAN Group, and Truong Hai Auto Corporation (THACO).

Vietnam’s biggest private company Vingroup continues its buying spree of the Shop&Go convenience chain, Fivimart supermarket system, Viet Thong A retail technology chain, as well as automaker General Motors Vietnam. Meanwhile, Hoang Anh Gia Lai and THACO signed a strategic co-operation agreement in 2018, making it the largest deal in recent years between two major Vietnamese corporations.

Warrick Cleine, chairman and CEO of KPMG Vietnam, said: “It is very positive to see local enterprises using M&A as a way to improve business prospects and add more value for their shareholders. Any business expanding in Vietnam has the option of starting from zero or acquiring an existing business.”

“The emergence of the local M&A market is a sign that local management teams are maturing in their abilities and consideration of different options to grow. It is exciting that they find opportunities in Vietnam more attractive than, for example, investing abroad. Successful M&A projects rely on smart decision-making and the integration of the business acquired, so the pressure on management to successfully implement the deals is huge,” he added.

On the same note, Frederick Burke, managing partner at Baker McKenzie Vietnam, said that domestic M&A deals are really hitting their stride these days. Like foreign companies have done for years all over the world, Vietnamese companies are realising that they can compete in global markets, and also domestic ones, if they pool their resources to achieve economies of scale and larger distribution networks.

“Managerial talent, which is scarce in Vietnam, can go further in consolidated enterprises. For listed companies, there is the advantage of size indicating stability and substance for foreign institutional investors. So we do expect to see more such transactions in the future,” he noted.

According to the Vietnam M&A 2018 report by StoxPlus, domestic M&A activities have been declining since 2016. Nevertheless, 2017 and the first half of 2018 saw an increasing number of mega deals. The most active sectors for domestic M&A in 2017 and the first half of 2018 were real estate, and food and beverage. For two consecutive years, real estate topped the chart as the most active sector in the domestic M&A market.

The report says that M&A across the borders by Vietnamese businesses were still very insignificant compared to domestic and inbound M&A during 2017 and the first half of 2018. Domestic businesses had not been actively expanding overseas through M&A and outbound M&A accounted for less than 1 per cent of the total M&A.