In the first five months of 2023, there have been just over 50 merger and acquisition (M&A) transactions in Vietnam with a total value of $2.88 billion, an increase of 28 per cent in quantity and an increase of 40 per cent in value, according to research by ASART Deal Advisory.

Strong recovery projected in Vietnam’s M&A arena in 2024, Photo: Shutterstock

Binh Le, head of M&A at ASART, told VIR that the consolidation trend through M&A, especially in emerging markets, is inevitable and is usually only slowdown when the buyer’s cost of capital gets more expensive. Vietnam is not an exception, with many good companies who have been a favourite target of foreign investors.

According to Trading Economics, last year, the Fed raised its reserve fund rates, which resulted in the consumer price index (CPI) climbing from 1.3 per cent in January 2021 to a peak of 9.1 per cent in July 2022 in the US.

“This led to the slowdown of M&A transactions during 2021-2022 and affected other markets, including Vietnam,” ASART said.

However, Le argued that recent positive CPI changes signalling the Fed’s upcoming reduction of reserve rates can lead to higher investor confidence and capital injection into related projects. “Pressure on interest rates in Vietnam is also down and allowing more capital injection into the economy,” Le said.

Meanwhile, Vietnamese target companies’ valuation have been cheaper mostly due to worsening profits impacts and scarcity of local capital sources, and they are more open to foreign capital as an alternative, with the 12-month deposit interest rate climbing from below 6 per cent in early 2021 to 10 per cent in late 2022.

“So, we are expecting a slight recovery this year and a strong recovery in the second half of 2024,” Le said.

Samuel Son-Tung Vu, partner of Bae, Kim & Lee Vietnam, said that the overall global market has been uncertain, therefore, many foreign investors were more cautious about where to focus their capital, and if they find a promising project, they may be willing to allocate more capital to capture the market.

“The main reason for this quantity-quality fluctuation comes from the situation that Vietnamese companies have been facing a liquidity difficulty due to the inability to access to the traditional capital mobilisation channels such as credit loan from commercial banks or issuance of corporate bonds,” Vu said.

Especially regarding companies engaged in real estate business, the current bond maturity pressure has forced those companies to conduct transactions for obtaining new capital sources for debt settlement purposes.

“From the buyers’ side, the eagerness in selling assets and capital mobilisation of the sellers expose the buyers, including foreign investors, with more opportunities and consideration for the mid/long-term investment in Vietnamese companies and projects at attractive valuations,” Vu said.

ASART’s research also pointed out that since 1991, 64.2 per cent of M&A deals in Vietnam have been smaller than $5 million, 31.6 per cent are in the $5-100 million range, 3.8 per cent are in the $100-500 million range, and only 0.7 per cent of them are worth more than $500 million.

Nevertheless, there is an increase in deal size for the last 10 years, so having more sophisticated and bigger deal size is one of the key reasons behind the increase in value for Vietnam, the research said.