“Economic difficulties are challenges to some businesses but they may bring opportunities to others. Such challenges and opportunities give incentives to both sides of merger and acquisition deals.”

Pham Xuan Can, director of the Vietnam Financial Investment Joint-Stock Co. (TigerInvest), said merger and acquisition activities would become more vigorous during the economic downturn, with the buyers gaining advantages over the sellers – mainly companies that have financial problems or weak competitiveness.

The buyers are paying most attention to businesses in the same industry, especially in the retail, real estate, construction materials and telecommunications sectors, Hai said.

His company had recently been hired as the consultants for a US$45 million takeover deal between Switzerland’s Holcim Group and domestic Cotec, one of the biggest merger and acquisition transactions this year. With an annual capacity of about 1 million tons of cement, Cotec found it hard to compete with other producers like Holcim and Ha Tien 1.

Holcim decided to buy Cotec’s cement factory because the group wants to expand its share on the domestic cement market, which is already crowded with too many players, Hai said.

“It’s more profitable for Holcim to buy such a factory than to build a new one,” he said, noting Vietnam has many small-sized cement factories in the country, most of them located near raw material sources.

Earlier this year, South Korea’s Lotte Confectionery Company announced it had bought a 30 percent stake in local company Bibica, which has a 10 percent market share.

The deal with Bibica will open more business opportunities in Vietnam for Lotte, South Korea’s biggest snack maker. Under the deal, Bibica will import Lotte products and distribute them through its system of more than 20,000 outlets nationwide.

Experts said the move is the fastest and safest way for Lotte to enter Vietnam’s distribution sector. With extensive experience and financial resources, Lotte can easily become the largest business in the local confectionery industry, experts said.

“[Local] businesses with large distribution networks often have more advantages in price negotiations,” Hai said. “Many foreign companies are aiming at [the retail sector] and thus buying and developing an existing distribution network is more effective than building a brand new one.”

Most foreign buyers in merger and acquisition deals are businesses that have been operating in Vietnam, he observed.

“During the global economic downturn, very few foreign companies want to take the risk of expanding investment to a market that they are not familiar with.”

Many local businesses spend a lot of time looking for a suitable buyer, not realizing that the potential ones are often those who already have business relationships with them at home, he said.

In the real estate sector, merger and acquisition deals present an easy way to help foreign investors participate in development projects.

“As it’s hard for foreign investors to start a property project due to complicated paperwork, bidding for projects from Vietnamese contractors gives them a shortcut,” Hai said.

The other side

But foreign investors are not the only one benefiting from mergers and acquisitions.

Phan Huu Thang, head of the Foreign Investment Agency, said M&A can become the main vehicle to attract foreign investment into Vietnam.

“Vietnam has to seize the chance of attracting foreign investment through merger and acquisition deals,” said Ngo Cong Thanh, head of the agency’s service office.

But to facilitate those deals, a clear legal framework must be created, he said.

Currently, there are four different sets of laws governing mergers and acquisitions, and no central agency is collecting data on such activities in the country.

As high borrowing costs make credit scarce, local companies are increasingly pursuing buyers or merger partners, TigerInvest’s Can said Friday.

“Companies have suffered a serious shortage of cash since May and June after the government tightened credit lending.”

Almost 800 companies, including financial firms, real estate developers and automobile spare-parts manufacturers, have listed their sale offers this year on TigerInvest’s website, he said. There were 300 listings last year.

Vietnam aims to restrict credit growth to 30 percent this year to cool inflation after prices rose at the fastest pace since 1992. The country’s borrowing costs are still the highest in Asia, along with Pakistan’s, even after the central bank cut the key rate to 13 percent on October 20.

“The financial problem smaller companies are facing makes Vietnam an attractive market for mergers and acquisitions,” said Nguyen Trung Thang, chief executive officer of Ho Chi Minh City-based Masso Group, which advises on mergers, acquisitions and initial public offerings of state-owned companies.

The government’s plans to cap the number of companies operating in Vietnam will force about 35 percent of all firms to merge in the next 10 years, Thang said.

“The government’s request to speed up the selling of state-owned company shares will also provide more merger-and-acquisition opportunities.”

Speaking at a conference held Friday to discuss merger and acquisition activities in Vietnam, Thang said he expects about 35-50 percent of 500,000 Vietnamese enterprises in 2010 to be subject to such activities.

The merger and acquisition trend is on the rise in the world and Vietnam is no different, he noted.

The first half of this year saw 48 merger and acquisition deals, with a total value of $347 million, according to a PricewaterhouseCoopers’ report released in July. That compared with 47 deals and $736 million a year earlier.

Some companies delayed agreements because of “economic uncertainties or renegotiations in pricing,” the report said.

Source: Agencies