Local firms major players in M&A market this year

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Local companies will have a strong hold on the mergers and acquisitions market this year as they continue to step up acquisitions, experts say.

Hung Vuong Corp., a seafood processor in the Mekong Delta province of Tien Giang, recently announced a public offer to purchase 3.75 million shares of An Giang Fisheries Export Import JSC, or Agifish.

The deal, expected to be completed by March 20, will increase the total Agifish shares held by Hung Vuong to 6.5 million, equivalent to 51.08 percent of Agifish's registered capital.

"Agifish has a good foundation and it's well-equipped to increase its exports," said Duong Ngoc Minh, chairman of Hung Vuong Corp. "Its weak point lies in business management."

Agifish shares hit their peak at VND155,000 in March 2007 but then nosedived to VND22,000 in mid 2008. The shares closed at VND35,400 on Thursday, down 0.56 percent from the previous day.

Minh said the takeover will bring into play the strengths of both companies and make them more competitive.

Share purchases are not just between companies of the same sector.

Phu Nhuan Jewelry Joint Stock Company, known as PNJ, last week announced its decision to continue investing in the Saigon Fuel Company by purchasing more shares to increase its ownership ratio to over 25 percent.

According to Saigon Fuel, PNJ has strong capital base and it will assist the fuel trader in expanding its retail chain in Ho Chi Minh City and neighboring provinces.

Analysts said the trend of local companies purchasing other firms or their assets started last year and would grow stronger in 2010.

According to a study by auditing firm PricewaterhouseCoopers, M&A in Vietnam in 2009 increased 2 percent on contract value, reaching US$1.138 billion. That compares to a record $1.7 billion in 2007.

"The strong pickup in deal volumes in the second half of 2009 was driven by domestic deals," the firm said.

A typical M&A deal in Vietnam used to have foreign companies as the acquirers, but that's no longer the case now. Last year Vietnamese companies were the acquirers in around 45 percent of all M&A deals, according to local investment advisory firm Avalue Vietnam.

Avalue Vietnam said of the 230 M&A deals in 2009, many were small with values of less than $5 million each.

Local companies in most of the transactions were in the private sector, as they were not bound by strict regulations and could take decisions easily, the firm said.

Nguyen Viet Khoi, an economist at the Hanoi National University, and Avalue Vietnam CEO Dang Xuan Minh said in a joint report published by local news website VnExpress last week that M&A activities in 2010 would grow in both number of deals and value.

Local buyers will continue to be active this year and the market will not be just about foreign firms, they said.

Khoi and Minh said some large deals are expected to proceed this year as local telecom giant Viettel plans to buy assets in Bangladesh and Haiti, while Vietcombank, Vietinbank and MobiFone are seeking strategic partners to sell stakes to.

Ban Viet Securities Company general director To Hai said M&A should play a bigger role in Vietnam's economic development.

"As the economy is heading towards a restructuring, M&A is a good instrument to use for reaching the goal," Hai said.

The biggest obstacle for local companies now is the lack of market experience, he said, noting that M&A decisions need to be made at the right time and at the right price.

While foreign companies always make careful plans about future business before taking an M&A deal, Vietnamese companies often decide arbitrarily on a transaction, Hai said.

"Most local firms only think about buying assets when they are cheap. They forget about a more important thing, which is how to create momentum for both companies after the deal."

The real value of an M&A deal includes what a company can earn after the transaction is completed, Hai said.

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