Vietnam: M&A trend on the upswing, legal framework inadequate: experts said

Mergers and acquisitions (M&A) have more than doubled in the first half of this year, and the trend will continue to increase, experts feel.

However, the country still needs an effective legal framework to facilitate the merger and acquisitions market, they note.

The number of mergers and acquisition transactions increased to 112 in the first six months of the year from 54 a year earlier, said Ian Lydall, senior partner at PricewaterhouseCoopers’s Vietnam unit.

He told a conference in Ho Chi Minh City Monday that the total value of the transactions halved to US$232 million from $471 million as prices became more realistic.

The local M&A market still has large potential for local and international businesses, Lydall said, noting that globally, the market had dropped 40 percent in value in the January-March period.

Vietnamese companies have been seeking buyers or partners to help meet a shortfall in capital after the central bank tightened credit to curb inflation and the equity market slumped due to the global financial crisis, the Industry and Trade Ministry’s Vietnam Competition Authority said in a report released Monday.

“There are plenty of positive noises around, so I expect mergers and acquisitions in Vietnam will continue to increase in the coming time,” Lydall said. “I would expect the average value to gradually increase over the next year or so.”

Prominent among the deals this year, is the purchase by SABMiller Plc, the world’s second-biggest brewer, of a brewery joint venture with Vietnam Dairy Products Joint-Stock Co. Also, Unilever’s Vietnam unit became a wholly foreign-invested company after it acquired the entire stake held by Vietnam National Chemical Corp. in a joint venture, according to Lydall.

The nation’s telecommunications, pharmaceutical, entertainment, media, retail, consumer goods and financial services sectors will be more attractive to foreign investors over the next three years, he said.

He said foreign funds were seeking opportunities to pour capital into Vietnam through M&A investments.

The M&A market had a total investment of $1.8 billion in 2007 and $1 billion last year, according to figures from the Ministry of Foreign Affairs.

But Andy Ho, managing director of VinaCapital Investment Management, said M&A activities were still slow in development as the country lacked a legislative framework that specified which businesses could strike M&A deals. Investors were therefore confused about what they could or could not do, he added.

According to regulations, when participating parties in an M&A transaction have a combined market share of less than 30 percent, they do not have to seek approval from the authorities. Meanwhile, an M&A deal that involves a combined market share of more than 50 percent will not be allowed to proceed.

Vu Ba Phu, deputy head of the Vietnam Competition Authority, said it was difficult to define the ratio as the Ministry of Industry and Trade had no relevant database.

Michiyo Hamada, commissioner of the Japan Fair Trade Commission, said Vietnam should pay attention to its legislative framework as M&A deals could restrain competition or lead to monopoly.

William E. Kovacic of the US Federal Trade Commission said M&A activities should be promoted as they benefit not only businesses but the nation’s economy as a whole. Businesses will be strengthened and empowered with skills and technologies from relevant partners, he said.

What Vietnam should do is to collect information and build a database of M&A transactions with the participation of government agencies and businesses, said Kovacic.

By Minh Quang