Sai Gon Investment had a discussion with Robert Tran (picture), CEO of RBNC, Global Business Advisory Firm to further understand this issue.
JOURNALIST: - Over the last decade, M&A activities in Vietnam have grown strongly with total value of USD 50bn. However, the M&A value in 2018 only reached USD 7.64bn, equivalent to 74.9% of 2017. Furthermore, with 6M/2019, the M&A value was limited at USD 1.9bn vs USD 3.55bn of 6M/2018. What do you think about these numbers?
ROBERT TRAN: - The numbers are very important in evaluating the status of the M&A market, however, numbers are not everything. We should evaluate the market by both quality and quantity.
Previously, most Vietnamese companies felt happy and were willing to receive investments from investors. However, many Vietnamese companies have been acquired and lost their brand name. Hence, Vietnamese enterprises are more careful now and have a clearer strategy in doing M&A. Vietnamese enterprises also have more options to raise capital, rather than being solely dependent on M&A activities.
Similarly, few years ago foreign investors were more short term, they acquired and sold out very quickly to earn a small profit. However, recently, they have been seeing more long term investments a lot more seriously.
I think the quality of investments is much more important than the quantity.
- The development of the M&A market has removed many differences between Foreign Direct Investment - FDI and Foreign Indirect Investment-FII. What do you think about these two investment areas? And what is your opinion about the issue that most Vietnamese enterprises will lose their brand name after M&A?
- FDI and FII both bring positive as well as negative impact for investors and companies. If there are more buyers and sellers in the economy or in the market, there will be more choices.
The advantages of FDI are that while the investors have more incentives, Vietnam has more chances to learn technologies and create jobs for its people. However, FDI also has several disadvantages. The investors have to face higher risk as most FDI are long term while the transferring of technologies is unsure and uncertain for Vietnam.
In regards to FII, the plus point is it help reduce the risk for investors as they invest in available companies. For Vietnam, this is a chance to globalize Vietnamese products as foreign investors will take Vietnamese products to the foreign markets. The domestic consumer also has a chance to buy new products from investors’ home countries. However, in these cases, it is reasonable to worry that the brand name of Vietnam will be lost. If Vietnam is not careful, the foreign investors may turn Vietnam to a place for selling foreign products of their parent companies.
I think to solve this problem, the Vietnamese government should have a strict mechanism to manage foreign investors, ensure they follow the legal framework of Vietnam and prevent them from violating laws and regulations.
- Which sectors do you think will attract more M&A deals in second half of 2019?
- There are some potential sectors. The first sector should be pharmaceutical and healthcare, including human medicines and drugs for animals and sea fish. The other potential sectors include cosmetics, agricultural products, education, hospitality, resort real estate and energy. Most of these sectors, excluding energy, have clear development strategies and focus on their investment, less in non-core businesses. The human resources for these sectors is also huge for professional training. The companies have to focus more on the quality of their human resource and invest more in them, rather than extract the benefit from them in the short term.
- Some people said that 2017 was the year of Thailand investors and 2018 was the year of Korean investors, so which investors do you think will be the prominent investors in 2019? And what do you think about M&A deals in 2018 and 2019?
- It is not important to evaluate the home country of the investors. The quality of investors is more important. How the companies will be after the M&A? Currently, most M&A consulting companies focus on closing the deal as soon as possible. It means they just play the role of brokers, not focus much on connecting the business with the investors after the deal.
In my opinion, the M&A deal is only successful when the company will operate well and have better performance post the deal. Hence, both companies and investors should be more serious in finding consulting companies who can ensure the success of the company after the deal. I have seen many companies facing difficulties after M&A as there have been no people to go along with investors and companies in the first three years after M&A to connect them in doing their business.
- What do you think about Vietnam’s current legal framework and policies for M&A?
- There is no right or wrong policy. It is more important to evaluate the suitability of the legal framework and policies. It is hard to give a specific suggestion now but I think the Vietnamese government should learn from developed countries to adjust suitably to market conditions of Vietnam.
- Thank you very much.