Vietnam Business Merger and Acquisition (M&A) Forum in 2020 was held with the theme “Rising in a new normal state”. The M&A Forum 2020 offers many perspectives on Vietnam’s M&A market in the past year and prospects for the coming year. Will the M&A wave explode in Vietnam in 2021?
Legal change in 2021
In the first session of the Forum, Mr. Phan Duc Hieu – Deputy Director of the Central Institute for Economic Management (CIEM) showed a new point that supports the M&A activities in particular and investment in general. This included 3 important laws that often had direct impacts to all aspects. They are the Securities Law, the Investment Law and the Enterprise Law which will all take effects on January 1, 2021. In these laws, there are 3 most important points that positively affect M&A.
Specifically, the Enterprise Law enhances the protection and the safety of buyers. The language of the law improves the level of protection of “shareholders” – who are buyers in M&A deals. For example, the power to nominate to the Board of Directors or to convene the General Meeting of Shareholders, shareholders/groups of shareholders must own 10% or more of the shares for at least 6 continuous months according to the current regulations. This regulation prevents M&A activities, because after they buy shares, it takes 6 months to get in to reconstruction and improve the efficiency of the company.
These irrationalities will be abolished in the new Law which sets the 10% ownership rate down to 5% and abolishes the 6-month period.
Securities Law and Investment Law
As for the Investment Law and the Securities Law, there are problems with the investment conditions in general and foreign investors’ ownership limit in particular.
According to the Investment Law, the Government commits to strictly comply with the promulgation of the portfolio according to the principle of exclusion. That includes: Industries that foreign investors are not allowed to invest in, restrict investment (The regulations must state what are the restrictions, form, rights, ownership…).
To support that, the Securities Law’s Implementing Decree has clear provisions on foreign ownership limits. These regulations have been here for a long time, but now it is much clearer. For example, it states what is forbidden to do. What is based on international treaties then it must be comply within the treaties regulations. What is stipulated according to Vietnamese regulations then it must be followed according to the Vietnamese’s regulations. “Businesses are eager to have a clear portfolio”, Mr. Hieu emphasized.
Opportunity for M&A
Besides, according to Mr. Hieu, the new Investment Law is also an opportunity for M&A activities in particular. There are two main changes. First, the new law adds a field of investment incentives, including commodity manufacturing sectors that provide services to join the value chains of industries, or the education sector has the addition of higher education, the medical sector gets more medical equipment,…
In particular, for the first time, there is a concept of special incentive packages for each type of project and investor. In which, limited to 3 areas of innovation, research & development and industries with large-scale incentives for capital investment. A special offer is that the Government may decide a more preferential rate than usual.
The change in policy will have a positive impact on M&A activities and protection for buyers.
International capital flows support M&A activities
According to Mr. Nicolas Audier – President of EuroCham, the approval of the EVFTA Free Trade Agreement will indirectly push the M&A transactions through. Projects from Europe to Vietnam will explode on this occasion. In addition, in the Vietnamese market, there is another factor with great potential that is also expected to boom. It is the infrastructure sector, which was stalled before because of the epidemics. EVFTA will protect investors between parties, gaining mutual investment for businesses. Mr. Nicolas is expecting to have strong progress from such deals.
The session continued with the topic “M&A trend” of Japanese investors in Southeast Asia. Mr. Masataka “Sam” Yoshida, Global Director of Transnational Merger and Acquisition Services, RECOF Corporation, General Director of RECOF Vietnam pointed out a lot of evidence that Japanese M&A capital flows are paying much more attention to the Vietnamese market.
The fall of Japanese market
In 2020, the Japanese domestic M&A market decreased by 4% compared to the same period last year due to the Covid-19 epidemic. However, the Japanese domestic market really bottomed out in May and the following months were recovering similarly to the previous years. Overseas M&A activity decreased by 33% year-on-year and is recovering slowly, mainly due to entry restrictions in most countries.
Importantly, the Japanese domestic market did indeed bottom out in May and is starting to recover. Therefore, this is also the future trend for oversea investment transactions as movement restrictions in most countries are lifted.
Covid-19 impact on M&A deal
During his discussion, Mr. Warrick Cleine – President and CEO of KPMG Vietnam and Cambodia said that he was very impressed and optimistic about M&A transactions under new forms of direct and indirect ownership or equity.
Currently, with the impact of the disease and trade tensions, together with the fact that Vietnam has proven itself as capable of controlling the disease will bring back many investors to this market to conduct M&A deals.
Mr. Warrick pointed out that there is a clear shift from the M&A agreement. However, a big obstacle that hinders the M&A progression is that Vietnamese businesses often want very high prices. In contrast, investors always want to be realistic at market prices. Thence, the biggest impediment is pricing.
According to Mr. Warrick, the family business group has positive signals in the capital market in Vietnam. Manufacturing and processing education… These “beneficial for the consumer” sectors are expected to grow strong.