Positioning Vietnam As A Top Market For M&A Deals Amid Global Uncertainty

Author: Binh Le, Founder and CEO of ASART Deal Advisory and Vice-Chair, Sustainable Finance Subcommittee of Capital Markets and Financial Services Committee and Environment, Social, and Governance Committee, AmCham Vietnam

Despite various external uncertainties, Vietnam remains an attractive market for activities in M&A. Binh Le, vice chairwoman of the Sustainable Finance Subcommittee under the American Chamber of Commerce in Vietnam, shows why there is still a boom in interest in the likes of greenfield investment and M&A transactions.

The world is experiencing many economic uncertainties and increasing risks from the complicated development of the Ukraine war, political conflicts, fear of energy crisis, inflation, disrupted global value chains, signs of economic recession, and weakened global growth prospects.

Despite that, Vietnam was named the top-rated destination for investment in the Asia-Pacific in an ASEAN Business Outlook Survey conducted with regional American chambers of commerce (AmChams) by AmCham Singapore.

Vietnam is one of the few countries that experienced positive growth during the pandemic, and its comprehensive vaccination policy enabled a quick rebound.

According to the General Statistics Office (GSO) of Vietnam, Q1-Q3 for 2022 on-year growth rate was 5.1, 7.7, and 13.7 per cent, respectively, with a recently updated forecast from the Ministry of Planning and Investment for 2022 to be at 8 per cent (higher than the previous target of 6-6.5 per cent).

Most sectors of Vietnam’s economic and social organisations, from the government levels to small startups, have favoured international economic integration. The flourishing image of Vietnam’s position is led by the government’s recent active direction in two main areas: policies to attract foreign direct investment (FDI) and active involvement in free trade agreements (FTAs).

The GSO notes that the total import and export turnover of goods has maintained a high growth rate. In 2021, the total import and export turnover of goods reached $668.5 billion, up 23 per cent compared to 2020.

In the first eight months of 2022, this number reached $498 billion, an increase of 15 per cent compared with the same period last year, of which exports and imports hit $251 billion and $247 billion, respectively, recording a trade surplus of $3.96 billion.

According to ASEAN’s report, in 2021, FDI inflows into the ASEAN region were about $174 billion, of which Vietnam accounted for about 9 per cent, equivalent to $15.7 billion, ranking third among the region. Vietnam has held this position since 2016, with a compound annual growth rate of 4.5 per cent.

AMERICAN PROMISE

According to the National Institute for Finance, total FDI inflows into Vietnam since the reopening

of the economy (in 1988) sits at $407.6 billion. Total foreign capital from the United States (both disclosed and undisclosed) accounted for about 6 per cent.

Figures for the first nine months of 2022 showed that the US was in the ninth position in terms of countries and territories pumping money into Vietnam, with total registered capital of $448.8 million, newly registered capital of $221.50 million, and 132 capital contributions and share purchases with a total value of $199 million. It is worth noting that much of the US investment going into Vietnam is indirect and thus not recorded as such.

Over the years, Vietnam has also gradually built up an extensive network with 15 signed FTAs, including the Comprehensive Progressive Trans-Pacific Partnership Agreement (CPTPP). It is also a member of the Regional Comprehensive Economic Partnership (RCEP), the largest trade bloc in history, and is also in the process of negotiating two other agreements (see box).

This global network of FTAs help to significantly remove tariff barriers, enable price competitiveness for Vietnamese exporters, and provide many market development opportunities for Vietnam, contributing to the orientation of commercial activities and FDI.

Although the United States and Vietnam entered into a bilateral trade agreement in 2000, the two countries have not since signed any FTA or similar agreement. Yet, the United States and Vietnam continue to expand trade and investment ties. Vietnam recently also agreed to become a member of the newly launched Indo-Pacific Economic Framework for Prosperity.

Furthermore, the United States remains Vietnam’s top export market and Vietnam is one of the fastest growing export markets for the United States. In recent years, Vietnam has become a top destination for investment for American FDI.

 Source: World Trade Organization

Leading US companies such as Apple, Amazon, and Qualcomm have recently invested, or expanded, in Vietnam. They followed a wave of high-tech groups like First Solar, Jabil, ONSemi, and others who followed Intel. Many others like Citibank, Suntory Pepsico, Coca-Cola, Cargill, Nike, and P&G have operated in Vietnam since the mid-1990s.

M&A deals involving American investors such as Warburg Pincus, KKR, and Mondelez are also increasingly active, investing in the likes of Vingroup, Masan, Techcombank, Becamex, MoMo, and Kinh Do over the last five years.

There have been nearly 190 M&A transactions with a total value of $5 billion by US investors since 1994, of which one-third of total M&A transactions and 42 per cent of total value were in 2017-2021 alone.

CONTINUING TRENDS

Although the global M&A market showed remarkable growth in the number and value, it demonstrated a greater downward trend in the total value than the total number of deals in Q1/2022, largely due to concerns about inflation, signs of economic recession, and political conflicts.

Europe, the world’s second largest M&A market in that period, showed the highest drop (60 per cent) in the total value of M&A deals, while the drops in North America and Asia-Pacific in the same period were 24 per cent and 18 per cent respectively.

Vietnam shared the same downward trend with the world with the attraction of only about $9 billion into the M&A market in 2021, but countered global trends in 2022 with a strong uptick.

The total value of M&A transactions in Vietnam continued to increase in Q1/2022 significantly, despite a decrease in large real estate transactions. Most strategic and financial investors coming to Vietnam, however, are actively seeking to invest in healthcare, education, energy, logistics, and manufacturing sectors.

Manufacturing, consumer retail, energy, logistics, healthcare, and education will continue to attract investors, to help develop and promote the Vietnam economy in the next 3-5 years. These are the industries where US investors can bring not only financial capacity but also technology transfers and subject matter expertise to Vietnam.

Vietnam’s competitive advantages are many: a strategic geographical location; a globally integrated network of FTAs, a stable political system, a young tech-savvy workforce, and a relatively open digital economy which has enabled Vietnam, to become one of the hottest markets for tech startups in the Asia-Pacific region.

In addition, Vietnam has committed to sustainable development as one of its key national goals, facilitating investment in renewable energy and sustainable supply chains. This is an extraordinary time in which many investors have paid more attention to Vietnam. US investors are not an exception, and we at AmCham see a growing number of companies looking to invest in or expand investments in Vietnam, including through M&As.

We also expect to see more US investors take advantage of the complementary fit of cultural, consumer behaviours, technology know-how, and skills between the two countries, driving more FDI inflows and M&A deals from the United States. With the right investment strategies, US investors should be able both to generate favourable returns and drive innovation and sustainable development in Vietnam.

(M&A Forum 2022 Publication, Vietnam Investment Review)

 

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