M&A shopping easier in foreign markets, local firms find

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Increased engagement by Vietnamese firms in mergers and acquisitions (M&A) has seen a new trend emerge a sharper focus on overseas markets.

PetroVietnam is the most active local firm in the M&A business. The national oil and gas group has offered shares in its affiliates to local and foreign investors while acquiring stakes in both domestic and foreign companies.

Nguyen Ngoc Su, deputy general director of PetroVietnam, said the group was restructuring operations both in the parent company and in 14 holding units. M&A was an essential tool in this process, he said.

Su said M&A activities would help the group strengthen and expand its business under new ownership and get rid of its weaknesses by selling off stakes in ineffective units.

The group sold 10 percent of shares in its financial unit to US investment bank Morgan Stanley and 12.6 percent of shares in its assurance business to Oman Investment Fund, while it acquired a 20 percent stake in the Vietnamese Ocean Bank.

Last year, PetroVietnam had acquired all the shares of Shell's retail unit in Laos and it plans to expand its network to Myanmar through M&A activities.

The 100 percent Vietnamese owned Investment and Development Company of Cambodia (IDCC) has bought or acquired all the shares of Cambodian Prosperity Investment Bank. IDCC was formed by the Bank for Investment and Development of Vietnam (BIDV) and Vietnamese Phuong Nam Company last year.

The Cambodian market has also been targeted by national carrier Vietnam Airlines which bought a 49 percent stake in Royal Air Cambodge that had been suffering losses since 2001. The carrier last year became a joint venture with a new name Cambodia Angkor Air that has since launched a route between Siem Reap and Ho Chi Minh City.

Trendy factors

Analysts say there are several factors behind this new trend. One is that local firms now have the financial wherewithal to invest abroad and are looking to expand their operations, particularly in neighboring markets.

Another reason given is that Vietnamese firms find it difficult to compete against foreign firms engaging in M&A activities in the domestic market, because the latter enjoy greater financial strength, have more experience as well as management expertise. In neighboring countries, Vietnamese firms find it easier to hold their own.

Deputy general director of auditing and consulting firm KPMG Vietnam, Nguyen Cong Ai, said local businesses were financially strong enough to expand abroad. By arranging M&A transactions, local business can integrate better into the global market and develop their international management skills, he said.

Some clients had consulted his firm as they planned to acquire shares in the US and Japan. Ai cited Saigontourist as an example. The country's leader in the hospitality industry was looking to buy property in Japan as part of its plans to enter the biggest economy in Asia.

It was an ambitious move for local businesses to enter M&A transactions in other countries in Southeast Asia, where they are stronger competitors, said Le Hoang Anh, director of Dragon Capital's Research Department.

Seck Yee Chang, a partner in the law firm Baker & McKenzie, said one explanation for this move was that companies have faced difficulties in local M&A transactions because they did not have enough information on businesses. It was easier to find substantial information on target companies and industries in other markets, Chang said.

The Vietnam Competition Authority has said M&A activity has increased as of late with 295 deals worth $1.138 billion struck in 2009 compared to 146 deals worth $1.117 billion in 2008.

Most of the deals were implemented by foreign firms that acquired strategic shares from their local partners, it said.

Great potential

Anh said Vietnam's M&A market had great potential in consumer products, pharmaceuticals and software industries in which local businesses hold small market shares, leaving considerable room for consolidation.

Many investors were eyeing these industries and would try to acquire more shares and take up dominant positions in the market, he said.

Luong Quang Hien, deputy president of Kinh Do Corporation, said the corporation was seeking opportunities to acquire shares in consumer products.

"We plan to expand into the food industry, instead of being just a bakery and a company that makes candy", Hien told Thanh Nien Weekly at the Vietnam M&A 2010 Forum held on Tuesday in HCMC. "M&A is preferable to setting up a new business."

Kinh Do was famous for acquiring all the shares in Wall's ice-cream for $20 million from US multinational giant Unilever in 2003.

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