M&A in Vietnam gathering momentum after COVID-19

Although COVID-19 did not completely hamper M&A deal flow in Vietnam, travel restrictions and a strict lockdown in the second half of 2021 posed major challenges for buyers and sellers alike. With the gradual unwinding of COVID-related restrictions and the resumption of international flights in October 2021, M&A activity has accelerated. The economy has recovered quickly and the outlook for dealmaking is positive.

Top 10 M&A transactions in Vietnam (October 2021 – August 2022)

Date	Investor	Target	Deal size (US$m)	Stake
Oct-21	SMBC Consumer Finance	FE Credit	1,400	49%
Jul-22	Swire Pacific	Coca-Cola Indochina	1,015	100%
Dec-21	TPG, Temasek, ADIA	The CrownX	350	4%
Nov-21	SK Holdings	The CrownX	345	5%
Dec-21	Mizuho	Momo	200	Undisclosed
Feb-22	AC Energy	Super Energy’s nine solar plants	165	49%
Oct-21	UBS, Mirae, STIC	Tiki	136	Undisclosed
Apr-22	Hana Financial Group	BIDV Securities	118	35%
Aug-22	Masan	Phuc Long	155	34%
Apr-22	Indorama Ventures	Ngoc Nghia Industry	94	98%

Source: Mergermarket

Key drivers propelling post-pandemic deal flow

Vietnam’s economic recovery has proven appealing to investors – it was one of the few countries that recorded two consecutive years of GDP growth in 2020 and 2021 during the height of COVID. According to the General Statistics Office, Vietnam achieved 2.58% GDP growth in 2021 [1], despite experiencing one of the strictest lockdowns in the world during the second half of that year. Looking ahead, the Asian Development Bank is forecasting that Vietnam’s economic growth will recover to 6.5% in 2022[2]. In fact, GDP growth in Q2 2022 was 7.7%, the highest quarterly growth in the last ten years.[3]

Pent-up dealmaking demand is a key driver. Both strategic investors and financial sponsors have a large amount of capital to invest and are keen to identify new opportunities or revive discussions that were on hold. Industry leaders are actively looking for acquisitions to consolidate market share within their verticals, taking advantage perhaps of competitors weakened by COVID and slower to rebound. In addition, many companies are looking to position themselves for recovery in the post-pandemic economy and need new capital injections for internal transformation and further growth in order to remain competitive.

The resumption of international travel is also significant. In-person due diligence and site visits have facilitated many deals that were previously put on hold, especially for asset-heavy industries such as industrials, logistics, and healthcare. Since October 2021, BDA has met with numerous foreign investors who have expressed a strong interest in Vietnam. After a two-year hiatus, BDA organised its annual networking event in Ho Chi Minh City in May 2022 with over 200 participants – mainly investors and corporate shareholders – and all appreciated the opportunity to reconnect in person and discuss the future.

Trends expected to persist post COVID

Domestic investors had an advantage over their foreign counterparts during COVID given their local presence, and this led to an increase in domestic deal flow and volume. Although COVID-related border restrictions have now been lifted, BDA has seen local conglomerates continuing their acquisition spree in a market that has historically been dominated by foreign buyers. For example, in addition to its investment in Phuc Long, Masan also acquired a 25% stake in Trusting Social, a company engaged with credit scoring based on social data, for US$65m in April 2022. This was another transaction in which BDA acted as the exclusive advisor to the target company. Nova Group has been on an acquisition spree, expanding its ecosystem with a focus on Consumer businesses, having acquired and taken over the operations of major F&B establishments such as Jumbo Seafood, Sushi Tei, Crystal Jade, and PhinDeli.

From a deal negotiation perspective, BDA has observed several points that have become particularly important during deal negotiations. With material adverse change (“MAC”) clauses, buyers and sellers now need to acknowledge the risk of a significant downturn in the business as a result of COVID. MAC provisions typically exclude market-wide macroeconomic impact, but since COVID has different effects on different industries, the negotiation of specific triggers in MAC clauses needs to be scrutinised. Earn-outs have become more common by bridging valuation gaps under scenarios of temporary uncertainty, while also enabling sellers to share in the upside of long-term growth. Warranty and indemnity (“W&I”) insurance, a rare option in Vietnam deals in the past, is also being used more frequently, as both buyers and sellers appreciate the benefit of a smoother and faster signing and closing process.

During the height of domestic lockdown and border restrictions in 2021, virtual interaction was the only option in most cases for M&A transactions in Vietnam. We expect that for non-key discussions, virtual meetings will continue to be a common option in the future. However, for other key parts of the transaction process such as site visits and due diligence, which were supported by on-the-ground advisors and virtual tours during COVID, and especially for negotiations, in-person participation will still be preferred going forward.

Global slowdown in M&A in 2022 and beyond

Global M&A in H1 2022 is down 21% by value and 17% by volume compared H1 2021[4], partly due to the cooldown in SPAC-related transactions. Inflationary pressure across the supply chain, geopolitical tensions, and a rising interest rate environment have also contributed to the volatility that could become a recurring theme in the M&A market over the next year or so.

Inasmuch as businesses in Vietnam are not immune to these factors, we still believe that 2022 will remain another busy year for Vietnam’s M&A market. Investors have not shown any reduced appetite in dealmaking in Vietnam, as evidenced in their interest in BDA’s ongoing mandates. We believe that there are a lot of high-quality assets that have proven resilient against turbulence brought about by COVID that are now well-positioned for robust growth, and we look forward to a busy period ahead with a long list of current live deals and ongoing opportunities.

Tailwinds for future growth in M&A in Vietnam include:

Strong socio-economic backbone: Vietnam will still benefit from steady economic growth, political stability, and a bourgeoning middle class population. Participation in multiple free trade agreements and open-market policies make Vietnam an attractive destination for foreign investment
Rising importance as a manufacturing hub: More global corporations are expected to relocate to Vietnam, as the country has made significant progress in infrastructure development to catch up with international standards, with major investments from both public and private sectors. The US-China trade war and prolonged COVID restrictions in China have also led to more manufacturers moving operations to Vietnam
Improving regulatory landscape: It is worth noting that with regards to M&A regulation and processes, local authorities have continuously been improving their turn-around time, while working towards clearer guidelines. For example, Decree 155/ND-CP guiding the implementation of the Law on Securities, which took effect in 2021, has provided additional clarification and detailed guidance with regard to the public tender offer process and foreign ownership limits
Growing familiarity with M&A: Local businesses are becoming more professional with strong management teams and better corporate governance. Vietnamese companies are now more familiar with M&A concepts and are open to consider strategic partnerships with foreign investors, who can provide support through best practices in business operations and have extensive experience from global markets

Most attractive sectors in Vietnam for M&A

Consumer

The Consumer sector will continue to be one of the main drivers of transaction volume
Investors will target Vietnam as one of the fastest growing economies in the region, with its growing middle class and a young population with increasing income and propensity to spend

Healthcare

In response to the lack of capacity within the national healthcare system, there has been an ongoing shift in demand towards private care
Private hospitals will continue to attract interest from both strategic and financial investors, especially as patient volumes and occupancy rates are recovering to pre-COVID levels, while more profitable surgeries and procedures are reintroduced

Education

Within private education, both local and international schools received significant interest from investors before COVID emerged
We expect discussions regarding education assets will be restarted in the near future, as the businesses’ performance recover now that students of all levels have returned to the classrooms

Logistics

Tailwinds from high growth in exports, a booming Internet economy, and supply chain shift from China will continue to propel growth in Vietnam’s logistics industry
Assets in warehousing (especially smart logistics) and cold chain will generate strong interest from global investors

Financial Services

An underbanked population with a shortage of financing and credit solutions will spur further investments in financial services
The focus will be on consumer finance / fintech companies that provide solutions to enable access to non-bank credit for both individuals and micro, small, and medium businesses

Renewable Energy

With a rapidly growing economy, Vietnam has been at risk of power shortages due to a lack of power infrastructure.
Capital injections into the development of renewable energy could provide a suitable solution. Attractive feed-in-tariffs and untapped potential in solar and wind power capacity will make Vietnam an attractive destination for investors

[1] https://e.vnexpress.net/news/business/data-speaks/vietnam-finishes-2021-with-2-58-pct-gdp-growth-4409596.html

[2] https://www.adb.org/countries/viet-nam/economy

[3] https://baochinhphu.vn/gdp-quy-ii-2022-tang-truong-772-102220629090231152.htm

[4] https://www.allenovery.com/en-gb/global/news-and-insights/publications/global-ma-transactions-drop-over-20-percent-but-bright-spots-remain

About BDA Partners

BDA Partners is the global investment banking advisor for Asia. We are a premium provider of Asia-related advice to sophisticated clients globally, with over 25 years’ experience advising on cross-border M&A, capital raising, and financial restructuring. We provide global reach with our teams in New York and London, and true regional depth through our seven Asian offices in Mumbai, Singapore, Ho Chi Minh City, Hong Kong, Shanghai, Seoul, and Tokyo. BDA has deep expertise in the Chemicals, Consumer & Retail, Health, Industrials, Services and Technology sectors. We work relentlessly to earn our clients’ trust by delivering insightful advice and outstanding outcomes.

BDA Partners has strategic partnerships with William Blair, a premier global investment banking business, and with DBJ (Development Bank of Japan), a Japanese Government-owned bank with US$150bn of assets. bdapartners.com

In the last few years, several trends have gained traction in Japan’s M&A market. The trends had already begun to take hold before COVID, which did not slow their development. In our latest insight, we take a closer look at three of the most significant trends, which are interrelated and are driving one another: 1) divestments by Japanese companies; 2) the ever-increasing activity of PE funds; and 3) the growing influence of activist funds.

Key takeaways:

Japanese companies are increasingly willing to divest non-core subsidiaries and assets, driven by changing perceptions about corporate divestments

This has been led by large-cap companies so far, but smaller companies are expected to join as they also begin to appreciate the benefits

Divestments by Japanese companies are proving to be fruitful targets for PE funds, who are aggressively entering Japan market and raising record levels of capital

Many corporate carveouts in Japan over the last few years have seen PE funds emerge as the successful acquirer

Another set of investment funds, activist investors, have stepped up their activity in Japan, embarking on campaigns against large companies to pressure them to increase corporate value

A common demand of activist campaigns is the divestment of non-core assets, which feeds into the first trend, thus continuing the cycle

Source: Dealogic

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About BDA Partners

As an increasing number of countries in Asia achieve an 80% vaccination rate, they are gradually removing COVID-19 social and border restrictions. BDA Partners is revisiting the fundamentals and attractiveness of the Asian healthcare services sector.

Healthcare services is the largest part of the healthcare industry in Asia. Its market size is expected to reach US$1.4tr by 2026[1], driven by a growing population, rising affluence, and a mounting disease burden.

Key takeaways:

Demand for healthcare services in Asia will continue to rise — the segment is growing at a faster pace than the overall healthcare industry, although healthcare infrastructure has been under-invested historically
Even as governments across Asia increase their budget allocation to healthcare, the private sector continues to play an important role, providing capital and improving the efficiency of the healthcare system
Financial sponsors have been, and will continue to be, active buyers of quality hospitals and healthcare services assets. Sponsors have been involved in 25% of healthcare services transactions from 2017-2021
The global dry powder of private equity funds reached a new record of US$1.8tr in February 2022, following a record year of fundraising
Asian M&A activity in the next two to three years will be strong, driven by consolidation and bolt-on acquisitions by strategics in their core markets, and investments by financial sponsors into both platform and growth companies

In this piece, we examine post-COVID sector trends and M&A activities in SE Asia, Greater China, and India.

Sources: Mergermarket
Note: (2) Other healthcare subsectors include Medical Devices, Medical Equipment & Services, Biotechnology Research, Drug Development, Drug Manufacturing, Drug Supply, Handicap Aids and Basic Healthcare Supplies, etc.

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Contact BDA health team

Andrew Huntley, Managing Partner, Global Head of Healthcare, London / Ho Chi Minh City: ahuntley@bdapartners.com

Anthony Siu, Partner, Co-Head of Shanghai: asiu@bdapartners.com

Sanjay Singh, Managing Director, Head of India, Co-Head of Asia Healthcare: ssingh@bdapartners.com

Claire Zhen, Director, Shanghai: czhen@bdapartners.com

Aditya Jaju, Vice President, Mumbai: ajaju@bdapartners.com

Yan Xia, Vice President, Singapore: xyan@bdapartners.com

Zhang Simeng, Vice President, Shanghai: szhang@bdapartners.com

[1] _{Fitch and Statista}

About BDA Partners

There has been a distinct focus on ESG and sustainability in Asian private equity deal activity in the first half of 2022, with implications for new investments, portfolio management and exits. We have seen this trend accelerate as we advise on a series of such transactions this year.

Asian sponsors are evaluating deals through an ESG lens

Western sponsors have thus far largely led the way on ESG considerations in M&A, with their APAC counterparts lagging behind. According to a recent Bain[1]survey, only 65% of APAC sponsors expect their LPs to scrutinise ESG issues over the next three years, compared to 96% and 80% for North America and Europe respectively.

However, the ESG agenda in Asian business is now picking up significant momentum. The survey[2] also found 57% of Asian GPs plan to materially increase their ESG efforts over the next three to five years, up from 30% in 2019. This goes beyond just compliance and regulatory reporting, with more and more funds adopting an explicit – and exclusive – focus on new investments that will have both a positive impact and generate higher financial returns.

These twin goals are no longer seen as contradictory, rather, self-reinforcing. In a McKinsey Global Survey[3], C-suite leaders indicated they would be prepared to pay a 10% premium to acquire a company with a positive ESG track record versus a company without one. Furthermore, the consensus was that ESG programmes created value over the short and long term.

PE funds are proactively issuing ESG/sustainability related reports (i.e. EQT, Partners Group, Carlyle, and Permira, all with a major presence in Asia) which have started to disclose ESG measurements at the fund and portfolio company level, including scope 1 and 2 carbon emissions, energy consumption, diversity and inclusion metrics, corruption, etc. Those that have set up an ESG reporting framework and roadmap for each portfolio company across the investment lifecycle will be better placed for a successful exit.

Asian GPs: increasing their focus on ESG / Sustainability

Asian GPs: % of assets evaluated with ESG due diligence

Source: Bain Asia-Pacific Private Equity Report 2022

Deal types

Robust and high ESG standard gives an investment opportunity a competitive edge, without which will greatly hinder financial sponsors’ deal appetite, whether deploying dedicated “impact-labelled” funds or generalist capital. We have witnessed exceptional demand for ESG-oriented business models in 2022 such as: validation of supply chains and workforce conditions, responsible electronic waste recycling and a range of renewable energy plays. Conversely, the manufacturing of consumer items that lack a sustainability narrative find it harder to navigate the investment committee stage. Investment committees are also putting greater focus on ESG at the M&A decision making stage and more are avoiding certain end markets with a high carbon intensity.

“BDA is building a solid track record in sustainable infrastructure and services in Asia, and globally for Asian clients.”
Lars Freitag, Managing Director and Head of Sustainability: Services & Infrastructure, BDA Partners

Renewable Energy

E-waste Recycling & IT Asset Disposition

ESG & Supply Chain Services

Exit implications for PEs

ESG is now front and centre in both M&A due diligence and the value creation playbook.

For M&A due diligence, the role ESG plays can vary from a simple red flag checklist to a dedicated ESG vendor due diligence report (with comparisons to market competitors, emissions calculations etc.) or even a full-scope ESG value creation assessment. Red flag reports are rapidly becoming the norm in Asia, but the latter two are less common due to on-going challenges such as insufficient data for benchmarking (making it too difficult to correlate to value) or lack of expertise (to effectively analyse the data). There is no “one-size-fits-all” approach to ESG due diligence and should be assessed on each specific transaction, sector, client, etc. as different businesses will present different ESG issues to be considered.

“We are finding that, when presented with an acquisition opportunity, sponsors are asking ‘How does this business make the world a better place?’ Without a convincing answer to potential investors in our marketing materials and due diligence, any sellside process is more at risk, even in Asia.”
Paul DiGiacomo, Managing Partner and Head of Financial Sponsor Coverage, BDA Partners

Aided by such references as Principles for Responsible Investment (“PRI”), Sustainability Accounting Standards Board (“SASB”) and UN’s Sustainable Development Goals (“SDG”), sponsors are encouraging Asian portfolio companies to not only implement action plans to improve ESG performance and reporting, but also ensure that such steps generate robust and quantifiable data to increase accountability. The clear expectation is that being ready to present sustainability KPIs will pave the way for a smoother and more remunerative exit.

One example is the Baring Private Equity Asia (“BPEA”) stewardship of HCP, the Shanghai-headquartered packaging company serving the global cosmetics market. Since its acquisition in 2016, BPEA drove a transformation of HCP’s ESG and sustainability capabilities, including developing refillable packages and use of sustainability-certified manufacturing facilities.This greatly facilitated the onward sale to Carlyle, which was announced in May and should close in Q32022.

“ESG considerations are being tracked and monitored by management and shareholders, and are quickly becoming an important value creation strategy in Asia, including for building brand equity.”
Mark Webster, Partner and Head of Services, BDA Partners

Who is doing what: selected PE Sponsors’ ESG moves in Asia

Baring Private Equity Asia, the regional PE powerhouse that set up a US$3.2bn ESG loan for APAC investment in 2021 – and has pioneered the implementation of ESG measures across its portfolio including HCP, sale to Carlyle announced (May 2022)
Goldman Sachs’ portfolio company LRQA acquired Hong Kong-headquartered ELEVATE, the supply chain verification and worker engagement platform (from EQT – May 2022*)
Navis capitalised on the circular economy thematic, exiting Singapore HQ TES, the electronic waste recycler and IT Asset Disposition service provider, to SK ecoplant of Korea (April 2022*)
Serendipity Capital’s portfolio company Pollination, the climate change advisory and alternative investment platform, attracted US$50m in Series B capital from ANZ (January 2022*)
StonePeak leading infrastructure specialist that targets assets globally, including dedicated capital for Asia, announced industry-leading ESG commitments alongside measurable and reportable plans to achieve them, including rigourous sustainability targets and the introduction of related performance incentives (March 2022)
Temasek and BlackRock created Decarbonization Partners, a US$600m partnership focusing on late-stage venture capital and early-stage growth funds for decarbonisation in 2021. In June 2022, Temasek announced the launch of GenZero, a green investment firm with an initial $5b pledge, a testimony of its commitment to halve the net carbon emissions of its portfolio by 2030 using 2010 as a base and achieve net zero by 2050.

* BDA transaction

[1] Bain Asia-Pacific Private Equity Report 2022

[2] Ibid

[3] www.mckinsey.com/business-functions/sustainability/our-insights/the-esg-premium-new-perspectives-on-value-and-performance, February 2020.

About BDA Partners

BDA Partners hosted our inaugural China Growth Capital Conference on April 26^th – 28^th. 20 presenting companies from consumer, health, services and technology sectors gave presentations to growth capital investors in over 200 virtual one-on-one meetings.

Anthony Siu, Partner and Co-Head of Shanghai, said: “Our 3-day virtual conference was a big success. It was BDA’s first growth capital conference and it attracted over 300 investors from 150 PE firms to participate in our conference. The attendees included blue-chip global and China USD funds as well as China RMB funds. We also received strong support from Founders and CEOs of high-growth companies in China to present at our conference. These companies represent industries which are at the forefront of China’s economic development including digital health, in-vitro diagnostics, premium healthcare services, lifestyle & wellness and fintech. The strong turnout reflects investor appetite for high-quality companies set to benefit from China’s rapid transformation toward an advanced economy. It also demonstrates ample private market liquidity seeking mid to late stage opportunities in China. We are very pleased to be the partner of choice for our clients in bringing private capital and exciting growth opportunities together.”

We look forward to our next BDA China Growth Capital Conference in 2023, and also the annual BDA PE Conference in late 2022. Please contact us at gcc@bdapartners.com or pe-conference@bdapartners.com if you would like to learn more about either conference, and the benefits of both presenting and attending.

About BDA Partners

Since 2020 BDA has successfully advised on nearly 60 transactions, making us one of the most active M&A advisors in Asia. This level of experience underpins our ability to deliver successful outcomes for our clients under dynamic market conditions.

For over 20 years, our Hong Kong team has advised multinationals on strategic carve-outs and bolt-ons, guided entrepreneurs on divestments and capital raises, and supported financial sponsors on investments and portfolio company exits.

We continue to leverage this experience and insight to deliver value-optimising results for our clients who entrust us with their business.

The enclosed flyer provides a snapshot of our capabilities and our recent track record globally and in the Greater China region. Our experienced and dedicated team of Hong Kong-based bankers is ready to support your M&A ambitions. Should you wish to learn more about BDA, our expertise and how we can assist you, please reach out to one of our contacts below:

Paul DiGiacomo, Managing Partner: pdigiacomo@bdapartners.com
Simon Kavanagh, Partner: skavanagh@bdapartners.com
Karen Cheung, Managing Director: kcheung@bdapartners.com
Mireille Chan, Director: mchan@bdapartners.com
Jakub Widzyk, Director: jwidzyk@bdapartners.com

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About BDA Partners

The article was originally published on April 2022 issue of Vietnam Economic Times

Over the last 25 years, Vietnam has transformed from a low-income country into one of the fastest-growing economies in the world, with GDP per capita increasing nearly ten-fold from 1996 to 2021_[1], supported by a strong socio-economic backbone of a young population and a rapidly-growing middle class. Along with economic growth, merger and acquisition (M&A) activities in Vietnam have also soared, driven by progress in equitization and market liberalization, as evidenced by supportive market regulations for foreign investors. From the quiet days of a handful of small value deals in the late 1990s, Vietnam’s M&A market has been recording over 500 deals each year recently. Larger deals have become more common, with 62 valued at $100 million or more over the last five years. Although challenges remain, the outlook for M&A activities in Vietnam is bright, especially as border restrictions have been relaxed and the country is heading towards post-pandemic recovery.

Figure 1: Number of transactions by year (1996-2021)
Source: Capital IQ

Figure 2: Total transaction value by year and average deal size[2] (1996-2021)
Source: Capital IQ

The emergence of a new M&A market (1996-2004)

Vietnam’s new market economy was gradually developing in the 1990s, after extensive socio-economic reforms brought about by “Doi Moi” policies since 1986. In 1995, Vietnam became a member of ASEAN as part of efforts to rejoin the global economy and attract foreign investment. The early days of M&A activities in Vietnam in the late 1990s to early 2000s were relatively quiet, with no apparent trend, as its economy was still largely dominated by State-owned enterprises (SOEs). There were fewer than ten transactions each year in this period, more than 90% of which were under $5 million.

Top buyer countries: In addition to domestic investors, investors from Denmark and the US were most active, followed by those from developed countries in Asia such as Japan and South Korea. The top position held by Denmark was primarily driven by Carlsberg’s acquisition of Hue Brewery in 2003, with the addition of several small-scale projects in Industrials and Information Technology backed by IFU, the Denmark-based development fund.

Top sectors: Consumer and Financial Services dominated in deal value, driven by (i) Vietnam’s gradual emergence from low-income status at the turn of the 21^st century, and (ii) the Vietnamese Government’s plan to revamp its nascent banking system with foreign investment.

Booming M&A activities due to market liberalization (2005-2013)

From only a handful of deals a year from 1996 to 2004, M&A activities in Vietnam skyrocketed to over 150 deals on average a year in the 2005-2013 period. Deal value and number of deals fell briefly from 2007 to 2009 due to the impact of the global financial recession, before rebounding in later years and peaking in 2011 and 2012 with a number of high-value deals. Transaction size significantly improved, with 90 transactions having over $50 million in value.

M&A activities in Vietnam increased significantly in this period due to:

An influx of foreign capital into SOEs: Major examples are investments by major Japanese banks such as Mizuho and Sumitomo in Vietcombank and Eximbank
A strengthened regulatory framework, as the 2005 Enterprise Law came into effect
Open market access for foreign investors: Vietnam became a member of the WTO in 2007, committing to one of the world’s most progressive market access programs

Top buyer countries: Domestic investors took the top spot with a number of sizeable transactions and many smaller ones (90% of domestic deals were under $10 million). The largest deals from domestic investors had two notable trends:

M&As in Financial Services, with top deals such as SHB’s $168 million acquisition of Habubank and Eximbank’s acquisition of a 9.6% stake in Sacombank for $100 million in 2012
Local conglomerates’ expansion strategies, with top deals such as Masan’s acquisition of (i) an 85% stake in Nui Phao Mining for $100 million in 2010, and (ii) a 40% stake in Vietnamese-French Cattle Feed (Proconco) for $96 million in 2012

Among foreign investors, buyers from Japan, France, the US, and Singapore were among the most active, with eleven transactions surpassing the $100 million mark.

Top sectors: Financial Services overtook Consumer to be the top area of focus for M&As and foreign investments, driven by market consolidation and the restructuring of Vietnam’s banking system. Industrials remained in the top 3, attracting M&A activities from foreign investors due to Vietnam’s potential in natural resources and low labor costs.

Record-breaking deal flow (2014-2021)

In the 2014-2021 period, annual average deal count increased more than three-fold to over 450. Transaction size also significantly improved, with 196 transactions having over $50 million in value; more than double the figure in the 2005-2013 period. 2017 was a record-breaking year in terms of transaction value, driven by ThaiBev’s acquisition of a 53.6% stake in Sabeco in 2017 for $4.9 billion; the largest deal in Vietnam to date. Overall, transaction value was on an upwards trend, peaking at $8.7 billion in 2017 before declining to $6 billion in 2019 as the US-China trade war sparked recession concerns, and $5.2 billion in 2020 due to the impact of Covid-19. However, M&A activities recovered strongly in 2021, with a record year seen in deal volume (651) and value ($8.8 billion), in line with global M&A trends and due to the unleashing of accumulated capital and pent-up deal-making demand. With economic optimism remaining high, especially given new open border policies, 2021 set a solid background for supercharged growth in M&As in 2022 and beyond.

Key drivers for record-breaking deal flows in this period include:

Favorable regulation and market access for foreign investors:
- The 2015 Law on Enterprises and Law on Investment allows foreign investors to own up to 100% of equity in listed companies in Vietnam, except for ones constrained by:
  - Foreign ownership restrictions, as set out in commitments to international treaties
  - Conditional lines of business
  - Voluntary limits imposed by shareholders

Vietnam’s participation in major free trade agreements such as the EU-Vietnam Free Trade Agreement and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership

Top buyer countries:

Thai and South Korean buyers showed an appetite for large-sized deals, as evidenced by ThaiBev’s acquisition of a 53.6% stake in Sabeco for $4.9 billion in 2017 and the SK Group’s acquisition of a 6.1% stake in Vingroup for $1 billion in 2019
Singaporean and Japanese investors were more attracted to small and medium-sized transactions, with only 5% of transactions having over $100 million in value
Deal flow involving domestic buyers, though no longer remaining at the top position, was still significant in volume, although 90% of transactions were under $10 million in value. Major deals with domestic buyers included Vingroup’s acquisition of a 96.5% stake in the Bao Lai JSC, a white marble mining company, for $119.8 million, and Masan’s acquisition of a majority stake in Phuc Long for over $100 million

Top sectors:

Information Technology emerged among the top 5, driven by private equity and venture capital investors betting on Vietnam’s dynamic internet economy, with the internet penetration rate doubling from 35% in 2011 to 70% in 2021 (according to the World Bank)

Deal flow and volume in Infrastructure, Government & Utilities was driven by transactions involving renewable energy. The largest deals included Chaleun Sekong’s $99 million acquisition of the Hoang Anh Gia Lai Hydropower Plant JSC and Banpu’s $66 million acquisition of the Mui Dinh Wind Farm

Although Real Estate M&A transactions (asset / project / land bank transfer) were not considered for M&A statistics here, it is worth noting that Real Estate also saw a boom in transaction numbers and value in the period, driven by rapid urbanization in Vietnam. There were 79 deals totaling $1.7 billion from domestic buyers and 178 deals totaling $4.4 billion from foreign investors.

Future outlook

Recent outbreaks of Covid-19 might put a temporary halt on progress in economic growth but will not reverse ongoing progress in socio-political changes in Vietnam, which will set a solid foundation for the next 25 years. Vietnam will continue to enjoy (i) a bourgeoning middle class with increasing spending power, (ii) a young population with a high urbanization rate, and (iii) stable political standing. As Covid-related restrictions have been relaxed, Vietnam’s economy is expected to strongly recover as the fastest-growing economy in ASEAN, with 6.6% growth in 2022, followed by the Philippines (6.3%) and Malaysia (6.0%). Since 2019, factory relocations from China or other parts of Southeast Asia have been driving an influx of foreign capital; a trend expected to persist in the next 25 years as Vietnam cements its strategic importance as a manufacturing hub in the region. Market liberalization will also continue to serve as the backbone for Vietnam’s economy, with government policies focusing on free trade agreements.

Expected trends

Environmental, social, and governance (ESG) criteria will become more deeply integrated into Vietnam’s M&A market.

Private equity investors have become more active in Vietnam in recent years. Recent examples of large deals involving private equity investors include KKR’s $650 million investment in Vinhomes in 2020, $400 million investment led by Alibaba Group and Baring Private Equity Asia (BPEA) and $350 million investment by a consortium of TPG, Temasek, and the Abu Dhabi Investment Authority in The CrownXin 2021. More and more global and regional private equity firms have established a local presence in Vietnam, with dedicated investment teams and networks of advisors on the ground.

Asia-Pacific investors will continue to rank higher in deal volume compared to their European and North American counterparts.

Buyout transactions have become more common, especially due to the impact of the pandemic, which led to the consolidation of small and medium-sized players into respective market leaders. Local conglomerates such as Vingroup, Masan, and the Nova Group have all been active in acquiring targets across different industries both within and beyond their core capabilities, such as education, technology, and F&B, etc., and are expected to accelerate their expansion strategies through acquisitions in the future. Foreign investors, on the other hand, have been increasingly active in pursuing buyout transactions in Vietnamese businesses, as seen in the Stark Corporation’s acquisition of ThiPha Cable and Dovina in 2020 and SCG Packaging’s acquisition of Duy Tan Plastics in 2021, for both of which BDA served as sellside advisor. Financial sponsors have also been active in buyouts of Vietnamese companies, as evidenced in acquisitions of majority stakes in Vietnam USA Society English Centers (VUS) and Vietnam Australia International School by BPEA and TPG, respectively.

Sectors of focus include consumer, healthcare, industrials, IT/technology, and renewableeEnergy.

In conclusion, we remain confident in the availability of opportunities in Vietnam’s M&A market going forward, especially now that social distancing restrictions have been lifted and borders are expected to be fully open this year. We at BDA in Ho Chi Minh City have seen strong interest from investors looking for sizable transactions, as foreign investors interested in Vietnam have accumulated a lot of dry powder since 2020 and are ready to revive deals that were put on hold or cancelled. Meanwhile, we are also observing strong demand for growth capital and exits from both founder-backed and private equity-owned companies, as evidenced by current live deals and strong pipelines of opportunities for 2022 and beyond.

[1] Source: International Monetary Fund

[2] Excluding transactions with undisclosed value

About BDA Partners

In recent years, moderating GDP growth, fierce competition from local players, rising geopolitical tensions, major regulatory changes, and management constraints stemming from the COVID pandemic have led many MNCs to consider taking a step back from China.

Since 2017, multinational corporations (“MNCs”) have realized nearly US$100bn from divestitures of PRC-based assets, with ~90% of transactions concluded with Chinese buyers. Today, the appetite of PRC corporates/sponsors for quality China operations is at an all-time high, and a well-run process can deliver strong returns for an asset with diminishing strategic value.

In our latest Insights, Unlocking Value with Strategic Corporate Divestments in China, we examine the recent expansion of MNC divestments in the PRC and discuss how on-the-ground insights and careful process management can optimize value in such a situation.

Click to download: Unlocking Value with Strategic Corporate Divestments in China

BDA is highly experienced in corporate exits, both in China and across Asia. For a further discussion please reach out to one of our contacts below:

Jeffrey Wang, Partner, Shanghai: jwang@bdapartners.com
Anthony Siu, Partner, Shanghai: asiu@bdapartners.com

About BDA Partners

2021 was a phenomenal year for deal activity in the Healthcare sector. Strong M&A momentum continued across most Healthcare verticals despite, and sometimes because of, extended COVID-19 disruptions. BDA closed landmark transactions across sub-sectors including Pharma Services (CRO/CDMO), Specialty Generics, Healthcare Services, Diagnostics and Life Science Tools, and Medical Devices, which touched on specialty therapeutic areas such as respiratory, renal care, OB/GYN and dental.

It was a busy year for Asian players in healthcare. Among them, Chinese buyers emerged as some of the most active participants, driven by the desire to expand their capabilities to address unmet needs in the strongly growing Chinese market. With our deep sector knowledge and broad network, BDA delivered strong transaction outcomes for our corporate and private equity clients throughout the pandemic.

Enabling client success:

BDA’s senior Healthcare bankers give their predictions for the year ahead.

Andrew Huntley, Managing Partner and Global Head of Healthcare:

In 2022 I believe the 2021 Asian Healthcare M&A tally of US$139.6 billion⁽¹⁾ will grow further. COVID-19 impacts that disguised underlying EBITDA and created valuation and diligence frictions between buyer and seller should moderate. Specialty clinic chains, pharma services (CRO and CDMO), and diagnostic products and services will continue to attract M&A in Asia. Life science tools and technologies is a category for which I see a growing appetite where the region lags developed markets. So is home healthcare. I am waiting for an Asian leader in medical device CDMO to emerge and there are some interesting building blocks out there. Consolidation trends in China will play out; and we might see some multinational divestments of Chinese units in pharma and devices.

Sanjay Singh, Managing Director, Head of India and Co-Head Asia, Healthcare:

India continues to build innovative pharma research and development capabilities on top of its generics base. This is especially the case in pharma services where I see increasingly well positioned CDMO assets in both API (drug substance) and formulations (drug product) which serve global pharma sponsors not just generics customers. These will drive capital raising and M&A transactions, as will early signs of India nurturing some differentiated medical device innovators. Domestic formulation businesses will likely see consolidation as larger companies seek to expand their presence in chronic therapies. Digital health and Healthcare IT are, respectively, new and established exciting segments for investment and M&A.

Anthony Siu, Partner, Co-Head of Shanghai and Head of Financial Sponsor Coverage, China:

Private equity owners of Health assets are going to capitalise on the favourable sector trends to exit their investments, but they will also be very active acquirers, armed with ample dry powder of over US$650 billion Asia-wide. Healthcare regularly features in the top two priority sectors for Asian financial sponsors. China focused sponsors will continue to back or partner with strategic acquirers to drive both consolidation within China and outbound acquisitions in the West. On the capital markets side, growing uncertainties in public markets will increase the appeal of private capital raise rounds before IPO.

We look forward to delivering outstanding advisory services and great outcomes for our clients.

About BDA Partners

The BDA Private Equity Conference is an annual convene where blue-chip private equity investors meet outstanding private companies. It is a unique platform for outstanding private companies in the chemicals, consumer & retail, healthcare, industrials, services and technology sectors to build their profiles and network with leading PE investors. It is also an exclusive opportunity for PE investors to hear introductory presentations by company founders or senior management, and to have one-to-one individualized access to them. This provides early exposure to companies that may explore a transaction in the medium term.

BDA PE Conference 2021

BDA Partners hosted the 3rd annual BDA Private Equity Conference from November 30^th to December 2^nd, 2021.

32 leading Asian private companies from the Consumer, Education, Healthcare, Industrials, Services and Technology sectors gave presentations and participated in one-to-one meetings with more than 250 Asian & global private equity investors.

Paul DiGiacomo, Managing Partner and Head of the Financial Sponsors Group at BDA, said: “The BDA PE Conference has proven to be a valuable platform for both the private equity community and blue-chip private companies in Asia. We provide investors with unique access to high-quality private companies, and company founders and senior management can begin to develop relationships with investors and get invaluable early market feedback. We’re pleased that the community continues to find the conference to be useful and rewarding, and we expect to introduce additional opportunities for investors and private companies to network and interact in 2022.”

We look forward to hosting the 2022 BDA PE Conference in the second half of 2022. Further details will be shared in due course.

Please contact pe-conference@bdapartners.com if you would like to learn more about the 2021 conference, or to attend in 2022. Please contact pdigiacomo@bdapartners.com to discuss the benefits of presenting at the 2022 conference.

About BDA Partners

BDA Partners is the global investment banking advisor for Asia. We are a premium provider of Asia-related advice to sophisticated clients globally, with 25 years’ experience advising on cross-border M&A, capital raising, and financial restructuring. We provide global reach with our teams in New York and London, and true regional depth through our seven Asian offices in Mumbai, Singapore, Ho Chi Minh City, Hong Kong, Shanghai, Seoul and Tokyo. BDA has deep expertise in the Chemicals, Consumer & Retail, Health, Industrials, Services and Technology sectors. We work relentlessly to earn our clients’ trust by delivering insightful advice and outstanding outcomes. BDA Partners has strategic partnerships with William Blair, a premier global investment banking business, and with DBJ (Development Bank of Japan), a Japanese government-owned bank with US$150bn of assets.

US securities transactions are performed by BDA Partners’ affiliate, BDA Advisors Inc., a broker-dealer registered with the Securities and Exchange Commission (SEC). BDA Advisors Inc. is a member of the Financial Industry Regulatory Authority (FINRA) and SIPC. In the UK, BDA Partners is authorised and regulated by the Financial Conduct Authority (FCA). In Hong Kong, BDA Partners (HK) Ltd. is licensed and regulated by the Securities & Futures Commission (SFC) to conduct Type 1 and Type 4 regulated activities to professional investors. www.bdapartners.com