M&A Trend Set to Continue, Say Experts

Mergers and acquisitions (M&A) have emerged as a new trend in Vietnam, with increasing transactions in recent times, and more on the way as the economic downturn claims its victims.

Cotec cement plant in the Hiep Phuoc Industrial Park in Ho Chi Minh City, which has been sold to Cement joint venture Holcim Vietnam

The most recent noticeable M&A deal was the purchase of the Cotec Cement Plant by the Holcim Cement Company of Switzerland.
 
Cement joint venture Holcim Vietnam took over the cement factory from the construction and building materials group Cotec in a deal worth US$45 million, not including other expenses and taxes, concluded on October 15.
 
Cotec Cement was sold because it couldn’t raise further capital to maintain production while it was selling less. The plant’s initial capital came from loans.
 
Besides, with a production capacity of one million tons per year, much less than that of two rival cement firms Holcim and Ha Tien 1, Cotec Cement couldn’t compete in the market.
 
To Hai, general director of Viet Capital Securities, whose services were hired for the deal, said both the parties were satisfied with the deal.
 
It helps Holcim eliminate a producer who was sharing a “cramped” local cement market, and also increase production capacity, he said.
 
Other major M&A deals include Daiichi buying out Bao Minh CMG, Anco buying Nestle’s milk plant, Swiss Reinsurance paying US$81.9 million to buy a 25 percent stake in the Vietnam National Reinsurance Corporation and Morgan Stanley Holdings Pte Ltd. taking a 48 percent stake in Huong Viet Securities Company.
 
In most of the above-mentioned deals, the buyers have maintained the seller’s brand names.
 
Phan Xuan Can, general director of Vietnam Financial Investment JSC (TigerInvest), said in the context of the ongoing financial crisis, there will be more M&A deals and the buyer will be at an advantage.
 
Most of the firms for sale face financial difficulties and their products are uncompetitive. Some sell their companies to switch to another business when huge opponents appear.
 
Hai of Viet Tel Capital said there are still many gaps in the current regulation on M&A activities, but most M&A deals are unsuccessful at the last minute due to high selling prices.
 
He said a company has been offered recently at US$15 million, but its investment capital was just $2.5 million, the remaining US$12.5 million was the land value. However, at current market rates, the land had a value of US$6 million.
 
Another company has valued its brand name at VND100 billion, while it was making annual profits of VND2.5 billion and had invested only VND5-6 billion to develop the brand, Hai noted.

Conditions for foreign investment
 
According to the Government’s Decree 109 on buying and selling fully state-owned enterprises, foreign investors can buy the entire stake in enterprises that are not in a list of sectors barred to foreign investment.
 
In enterprises in barred sectors, foreign investors can buy partial stakes.
 
The decree also prohibits investment by consulting agencies -- and their employees -- hired to value or auction state-owned enterprises.

By Hai Dang (Tuoi Tre Newspaper) – Translated by Chuong Hy

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