Investors are looking to mergers and acquisitions as the fastest route to embracing digital transformation in Vietnam’s flourishing tech scene.

M&A in tech drives a digital overhaul

The rise of omnichannel retail in Vietnam is witnessed through such investors increasingly turning toward e-commerce startups to bring a seamless shopping experience for consumers.

In November, Vietnamese e-commerce platform Sendo wrapped up a $61 million investment in its Series C funding round from existing shareholders, as well as new investors including Indonesia’s EV Growth and Thailand’s Kasikorn Bank.

Meanwhile, e-commerce startup Tiki reportedly raised $75 million in March 2019 from investors led by Singaporean private equity company Northstar Group.

In October last year, Scommerce, the parent company of e-logistics groups Giaohangnhanh and AhaMove, secured its latest and largest funding round led by Singapore’s state-owned investment company Temasek.

Although the funding amount was not disclosed, it was reported to be worth up to $100 million. The deals reflect the continued investment and growth in omnichannel retail, including in technology and logistics platforms that support such growth.

Most recently, Vingroup JSC announced its merging its retail and agricultural arms with Masan Group’s consumer goods subsidiary, Masan Consumer Holdings, to create the country’s largest retail company.

This new platform is exceptional in its scale and reach in the market: 2,600 supermarkets and convenience stores in 50 cities and provinces, which includes the VinMart 4.0 virtual stores.

Seck Yee Chung, a partner at Baker & McKenzie Vietnam, told VIR that M&A in retail is mainly driven by Vietnam’s growing middle class, with more disposal income and aspirations toward a more rewarding lifestyle.

At the same time, as a highly competitive sector, retailers with physical locations will also have to contend with the growing trend in e-commerce, and adopt digital transformation in their business models.

“To survive and thrive, retailers will have to adapt to and leverage consumer trends and preferences in terms of what their customers are looking to purchase, as well as why and how,” Chung said. “Whilst M&A tends to suggest an effort to consolidate and scale up, retailers might also be looking at bringing onboard a vertical element in the supply chain to ensure quality and consistency of supply, or to bring in a new dimension to their business model to enhance consumer experience and options.”

M&A in retail to build an omnichannel presence is one of the emerging trends in Vietnam’s tech landscape. Indeed, Vietnam’s growing digital economy and tech startup scene is increasingly becoming a “darling” among foreign investors, especially those from the Asia Pacific region.

In August 2019, Grab announced plans to invest $500 million in Vietnam, with tech startups being a focus area. Softbank’s Vision Fund and GIC poured $300 million into e-wallet VNPAY’s parent company in July last year, while e-wallet group Momo raised $100 million from Warburg Pincus in January, according to news platform DealStreetAsia.

The Vietnam Tech Investment Report 2019 by Cento Ventures and ESP Capital found that Vietnam leapfrogged from the second-least active tech startup ecosystem to the third-largest in the ASEAN within two years, trailing only behind Singapore and Indonesia. Between the first half of 2017 and the first half of 2019, the amount of invested capital in Vietnam and the number of technology deals grew six-fold, led by investments in the fintech, e-payment, and e-commerce space.

Specifically, Vietnam has experienced a surge in both the amount of capital invested and the number of deals carried out since the beginning of 2018, with financial year 2018 totaling $444 million and financial year 2019 expected to reach $800 million. With digital transformation being a key strategic goal for most businesses, the startup providers of new technologies are themselves targets for funding.

Maybank Kim Eng economist Linda Liu told VIR, “We see tech startups riding on this digital transformation wave and playing an integral part of Vietnam’s digital economy in the future. A greater push by the government as laid out in the National Digital Transformation Plan for 2021-2030 could serve as yet another catalyst for tech investments into the local startup scene.”

Much like many other parts of the world, digital transformation is emerging fast in Vietnam, Liu added. “It is an opportunity for Vietnam to realise its potential and unlock the economic opportunities available in order to catch up with the world.”

Last August, VinaCapital, a leading investment management firm, officially launched VinaCapital Ventures, a tech-focused venture capital fund with a corpus of $100 million. The new venture capital fund will set up a company that will invest in startups with innovative technology solutions.

“While manufacturing and property get most of the attention and investment in Vietnam, tech – and startups in particular – hold the greatest promise for the country,” said Don Lam, VinaCapital co-founder and CEO. “Technology is playing a transformative role in all manufacturing and service sectors and will drive Vietnam’s economy forward. That’s why venture capital, including supporting startups and entrepreneurs, has been a key part of VinaCapital’s business for the past 15 years.”

In 2019, VinaCapital Ventures made investment in a number of startups such as logistics firm An Vui, ride-hailer Fastgo, digital gifting platform Urbox, logistics startup Logivan, prop-tech company Rever, and social e-commerce platform Ecomobi.

Thach Le Anh, founder of Vietnam Silicon Valley, lauded the maturity of Vietnamese startups. The fund has seen the rate of successful investment in startups hit 36-40 per cent, fairly high compared to other countries in the region.

“A booming economy, growing middle class, and increasingly tech-savvy population imply great growth potential for the tech startup scene in Vietnam,” Anh added. “These are among the key reasons drawing in investors.”