Cooling-as-a-Service: Decarbonisation by Servitisation

One of the most promising shifts for decarbonisation is the introduction of “Cooling-as-a-Service” or “CaaS”. With temperatures rising globally, temperature cooling has never been as important but comes with a significant environmental footprint. Outsourcing cooling to a third party directly incentivises these service providers to provide service as efficiently and environmentally friendly as possible and design a better, less carbon-intensive cooling infrastructure.

The carbon footprint of the “built environment” already represents ~26% of global CO2 emissions and will continue to become more significant without fundamental change
The CaaS model allows the service provider to assume full responsibility for the design and investment ownership required for the cooling installation and related equipment, associated energy and water consumption, and it’s operation, maintenance and optimisation
The service provider is accountable for achieving specific metrics while charging at a fixed price
The client is only responsible for ensuring a consistent supply of electricity and water to the equipment
The CaaS provider is therefore directly incentivised to install and/or run the equipment in the most efficient way possible

Download the full report for more insight regarding CaaS and its potential impact on decarbonisation

Sources: United Nations, Global Change Data Lab, IEA, The Economist

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, Sustainability 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

Huong Trinh, Partner and Head of Ho Chi Minh City at BDA Partners, shares her insights with Vietnam Investment Review.

With only three months of the year left, how has Vietnam’s M&A for 2023 fared so far?

Over the second and third quarters of 2023, a number of M&A transactions with deal size of over $100 million were announced. Some notable deals are the investment of up to $500 million into Masan Group Corporation led by Bain Capital, the $381 million acquisition of FV Hospital by Thomson Medical Group, and the investment into Xuyen A Hospital by Warburg Pincus. In addition, there are ongoing sizable M&A transactions across the consumer, healthcare and education sectors, which have received strong interest from both strategic and financial investors and are likely to reach the signing stage in the next six months. Even though the total deal volume in 2023 might be impacted, the average transaction value based on recent transactions has increased significantly. The healthy deal flow emphasizes investors’ confidence in the market’s long-term growth potential.

As local businesses are struggling amid a challenging economic outlook, do you see foreign investors stepping up their M&A transactions here?

Despite various macroeconomic challenges, Vietnam is expected to achieve a GDP growth rate of 5-6 per cent in 2023. The macroeconomic environment and consumer demand are expected to start to recover in the first half of 2024. Foreign investors, despite the market’s weakening performance in 2023, continue to source and monitor the investment opportunities in Vietnam. There has been a long-term view that Vietnam is one of the most attractive markets for investment in Southeast Asia thanks to its favourable demographics, resilience, as well as government efforts in improving the investment environment.

Inbound M&As remain vibrant in banking, healthcare, renewables and real estate. Why do these sectors remain a target?

Vietnam’s favourable demographics, stable socioeconomic environment, increasing disposable income, and improving investment environment remain key factors that underpin the inbound investments into the banking sector, such as the $1.5 billion acquisition of a 15 per cent stake in VPBank by Sumitomo Mitsui Banking Corporation, and the $850 million acquisition of 15 per cent stake in BIDV by KEB Hana Bank. Notable deals in the healthcare sector are the acquisition of FV Hospital by Thomson Medical Group, the investment into Xuyen A Hospital by Warburg Pincus, AIH by Raffles Medical Group as well as Singapore’s sovereign wealth fund GIC’s investment into Nhi Dong 315, a Vietnamese pediatric clinic operator. In the renewable energy sector, Vietnam witnessed the $165 million acquisition of a 49 per cent stake in Vietnam solar platform Solar NT from Super Energy Corporation by AC Energy Corporation, and the $108 million acquisition of a 35 per cent stake in Gia Lai Electricity by JERA. Regarding real estate sector, there is the $250 million investment into Novaland led by Warburg Pincus, along with the $650 million investment into Vinhomes by KKR. We expect that M&A activities in these sectors will continue to increase in the future.

Do you expect any shift in investor interest in emerging fields in Vietnam, such as electronics, semiconductors, and electric vehicles?

Yes, we have seen increasing interest in these areas as a result of Vietnam’s unique positioning – strategic location, skilled workforce, cost advantages, and stable socioeconomic environment. Following the supply chain diversification which started during the pandemic, and increasing global demand for these products, Vietnam continues to invest in infrastructure and technology to become a major industrial hub in Asia. The government has taken a proactive approach in developing these new sectors. In August 2023, the Ministry of Transport submitted its proposal on special incentives for electric vehicle (EV) producers and users to a deputy prime minister. These incentives included preferential special consumption tax, exemption of licence plate issuance fees, preferential import tariffs on equipment, production lines and components for the production and assembly of EVs and batteries, and a $1,000 incentive for each EV purchases. As for semiconductors, while it is not a new area as foreign players, Samsung, Amkor Technology, and Hana Micron have already established presence in Vietnam. Such moves have been in the spotlight recently, being a key topic of discussion at the Vietnam – US Summit in September 2023. The Vietnam – US comprehensive strategic partnership and the government support will help Vietnam’s semiconductor industry to develop further.

About BDA Partners

BDA Partners Managing Partner Paul DiGiacomo was invited to be the keynote speaker at the VinaCapital Vietnam Investor Conference in Ho Chi Minh City in early October 2023. Having lived in Asia for 25 years and been active in Vietnam for the past 15 years, Paul has a unique perspective on the drivers and fundamentals of Vietnam’s investment landscape.

5 takeaways from the keynote speech

1. BDA is bullish on Vietnam

- - - 15+ years active in the market
    - Team of 10 M&A bankers
    - Investing opportunistically into early-stage opportunities through our partners’ fund

2. Vietnam has attractive investment fundamentals, supported by:

- - - A young and dynamic population
    - An entrepreneurial and East Asian culture
    - A stable socioeconomic and political structure
    - Solidly moving up the manufacturing value chain to higher value added areas

3. External macroeconomic conditions that support Vietnam’s growth include:

- - - Strong FDI trends
    - US/China decoupling and global supply chain reorganizations
    - Increasingly strong US support for economic success

4. Risks to Vietnam’s growth are:

- - - Climate change and in particular rising sea levels
    - The potential for deglobalization to proceed more aggressively
    - Infrastructure insufficiency

5. The future is bright in Vietnam. By 2030 Vietnam will have:

- - - 36 million people in the middle class….
    - …distributed across the country, with 25+ cites each having a middle-class population in excess of 250,000
    - Much greater global supply chain integration in high valued-added products such as electronics and semiconductors

BDA Partners has been active in Vietnam for over 15 years. We received our first investment banking mandate in 2007 and established an office in Ho Chi Minh in 2011. We now have a team of 10 bankers on the ground working across multiple sectors.

Anthony Siu, Partner and Co-Head of China at BDA Partners, was interviewed by Wancheng Hu, a reporter at South Reviews. The publication is a political and economics magazine published under the Guangzhou Daily Press Group in Southern China. The following is a translated version of the article published on June 5, 2023.

China’s outbound M&A volume dropped to its lowest point last year. According to PricewaterhouseCoopers, the total value of M&A transactions in China fell to US$485bn in 2022, representing an 80% decline from the peak in 2016, and is comparable to 2009 when investment activities plummeted in the wake of the global financial crisis.

The Covid-19 pandemic and increasing geopolitical tensions led to varying degrees of restrictions on capital flow. Combined with stringent national security reviews, China’s outbound M&A has suffered a dramatic slowdown in recent years.

As the pandemic came to an end in early 2023, investment activities gradually picked up again. China’s outbound investment policies have not changed significantly, and the central government’s focus remains on encouraging foreign direct investments in healthcare, technology, advanced manufacturing, energy, and resources.

In the first half of 2023, the M&A market is back on a recovery path, with domestic transactions dominating China’s M&A. Cross-border M&A will likely see a pick-up in the second half of 2023, with Asia Pacific and the Middle East becoming the preferred markets for Chinese acquirers.

Amid early signs of an increase in activities, China’s outbound M&A will face challenges as well as opportunities in the near term. The following are key factors to consider for China’s outbound M&A:

1. Impact of increasing regulations on cross-border M&A

BDA Partners specialises in cross-border M&A advisory and has been the top-ranked investment bank for cross-border M&A (enterprise value up to US$1bn) in Asia since 2016.

Mr. Siu moved to Shanghai from Hong Kong in 2008 and has been engaging in Chinese M&A advisory ever since. Having witnessed a long period of unprecedented growth of Chinese M&A, he was apprehensive about the recent downturn.

Siu said “For M&A practitioners, a lot has changed in recent years. The number of Chinese companies looking to engage in outbound M&A has shrunk significantly. The combined impact of the pandemic and the geopolitical tensions have led to a dramatic decline in M&A volume.”

While he believes that the pandemic impact is temporary, the geopolitical impact on cross-border M&A will be longer-lasting. In particular, the heavy regulatory scrutiny on China’s outbound M&A transactions is likely to stay for some time.

Among the affected regions, the US has been impacted the most. In January 2020, the US Treasury published new regulations based on the Foreign Investment Risk Review Modernization Act that significantly expanded the scope of the Committee on Foreign Investment in the United States (CFIUS).

“When a non-US company wants to acquire a US company, it needs to go through CFIUS review. The review will take a long time if the target’s industry is considered sensitive and involves national security concerns” said Siu, “although many transactions were not vetoed, they did not receive CFIUS approval and therefore were unable to close.”

In addition, countries that were previously considered to be open to foreign investments are moving toward increasingly stringent FDI reviews.

Germany, for instance, the country with the largest number of Chinese investments in the EU, had promulgated the Foreign Trade and Payments Act, imposing strict review measures for investments by non-EU countries and expanding the scope of mandatory filing obligations involving “critical infrastructure” and “critical technology.” Industry practitioners say that a large number of transactions were abandoned due to a slim chance of passing FDI or anti-monopoly review.

“Obtaining regulatory approval is a common concern for companies involved in cross-border M&A. If a Chinese state-owned enterprise (SOE) decides to conduct a transaction overseas, it requires approval from the State-owned Assets Supervision and Administration Commission (SASAC). Moreover, when the transaction amount exceeds US$300m, further approval is required from the China National Development and Reform Commission (NDRC). These approvals will typically take time to go through,” said Siu.

The aforementioned includes only the approval procedures required from the Chinese side, while each country has its own jurisdiction and approval procedures, which further complicates the closing of a transaction. A few high-profile cases involving SOE acquirers over the years include:

In 2005, China National Offshore Oil Corporation (CNOOC) attempted to acquire Unocal Corporation in the US, but the transaction was blocked as it did not pass a national security review
In 2009, Aluminum Corporation of China’s planned acquisition of Australia’s Rio Tinto was terminated because stakeholders reckoned that the terms were biased toward the buyer
In 2020, Shandong Gold Mining’s acquisition of Canadian gold miner TMAC Resources was blocked by the regulatory authorities due to national security reasons

In addition to national security considerations, Chinese acquirers face increased scrutiny in areas such as information transparency, financing sources, and shareholding structure.

2. Where will the China capital go?

Despite some challenges, outbound M&A activities are showing signs of recovery.

Countries around the world are welcoming investments in industries that are deemed important to the country’s economic development. In addition, industries that have been hit hard by the pandemic, including transportation and logistics, tourism and hospitality, basic materials, and consumer goods, are recovering, giving acquirers renewed confidence in investing in the future upside of these industries.

Siu is bullish on the China outbound M&A market. The resumption of international air travel and the normalization of business activities will allow Chinese acquirers to become more active in engaging in outbound M&A activities. However, he believes that this wave of outbound M&A will be different from the past. Rather than focusing on the U.S. and Europe, Chinese acquirers will be shifting their focus to new markets such as Southeast Asia, the Middle East, and Africa.

“China today is playing a role similar to the US in the 1990s and early 2000s,” said Siu.

During those periods, US companies, facing a saturating domestic market, expanded their international footprint to high-growth emerging markets via M&A.

China is doing something similar now. In the past, the focus was on acquiring Western technologies and know-how to bring them to the Chinese market. This coming wave will be about investing in opportunities that allow Chinese acquirers to export self-developed technologies and products to the international markets. Instead of facing head-on competition in a crowded domestic market, they go abroad to look for new growth opportunities. Companies in the technology, media and telecom (TMT) space and the electric vehicle (EV) sector are among those industries with growth potential.

Southeast Asia, due to its close geographical proximity to China, has been a favourite destination for China’s outbound investments. Indonesia is one such example.

Indonesia has the world’s fourth-largest population with 274 million people and a young labour force. In 2022, investments made by Chinese companies in Indonesia reached US$8.2bn the second largest source of FDI in Indonesia. Today, Chinese investments are present in e-commerce, ride-hailing services, online food delivery, digital financial services, and online gaming sectors in Indonesia.

“Unlike trading and manufacturing companies that have gone to the West in the early days, Chinese high-tech and smart manufacturing companies looking to expand overseas now select Southeast Asia, the Middle East, and Africa as their priority markets to enter,” said Siu.

However, with benefits also come challenges. Just like many foreign companies find it difficult to adapt to the Chinese market, many Chinese companies that entered new markets have encountered challenges in working with local management, understanding the local culture, and dealing with workers that are not accustomed to long working hours.

The above are all common problems encountered by Chinese acquirers in outbound investments. Essentially, it is the lack of attention and effort paid to post-acquisition integration and understanding of cultural differences that hinder the acquirer’s success. For example, Chinese companies often lack experience in managing employees under a union-led workforce. If appointed Chinese executives attempt to impose a top-down culture, employees are likely to express dissatisfaction. Over time, a growing estrangement will develop between the local employees and the Chinese executives.

3. Focus on building up M&A expertise and acquiring talent

Having worked on M&A for over two decades, Siu has witnessed many successful acquisitions, while others failed and had to go through a difficult period of restructuring.

He observed that the issue faced by Chinese acquirers is usually caused by a breakdown in communication. When a Chinese acquirer becomes the controlling shareholder, the target’s management is often concerned about how the new owner will affect its corporate culture and management style, soft issues that are often overlooked by the Chinese acquirers. If these problems are not handled properly, the target’s management team will ultimately choose to leave.

These kinds of issues can often be mitigated if the acquirer has already established a presence in the target’s region, along with a team that understands the local system and culture. If the acquirer can understand the target company’s pain points, it can address these issues upfront more effectively, and the chance of a successful integration will increase.

Siu pointed out as an example a cross-border transaction that BDA and its strategic partner, William Blair, served as the sell-side advisors for Summa Equity, a Finnish private equity firm, on the sale of its portfolio company, HyTest, to China’s Mindray for €532m in 2021.

HyTest is a leading global supplier of in vitro diagnostic (IVD) raw materials, with in-house R&D and production capabilities for high-quality antigens and antibodies. This acquisition has helped Mindray broaden its international footprint and strengthen its value chain coverage while fulfilling the need for top-graded IVD upstream raw materials in China.

Simeng Zhang, Director at BDA Partners and the project lead for the sale of HyTest, stated “compared to other companies, Mindray has a professional in-house M&A team composed of talent with prior experience at accounting firms, law firms, and investment banks. Having this talent on the team made the due diligence, negotiation management, and decision-making process much smoother.”

She also mentioned that Mindray and HyTest had already established a good level of trust in prior business relationships. “In the past few years, more than half of HyTest’s revenue came from the China market, and with Mindray’s globalization strategy, the acquisition of HyTest became particularly attractive to Mindray.”

Though BDA Partners often takes on the role of a sell-side advisor, when the transaction involves a Chinese buyer, BDA Partners will also take the initiative to coordinate with the buyer to elaborate thoughts from the seller’s side, including management’s concerns on the transaction and key transaction terms.

Siu believes that the days of relying on the China growth story to win over the seller’s and target’s management are gone. Chinese acquirers should have a clear plan for globalising the target’s business beyond just China. “We are actively working with our clients to search for quality investment targets on a global scale to help them expand their international footprint,” said Siu.

The history of globalisation proved that successful M&A transactions can generate higher shareholder returns and help global players strengthen their competencies and maintain their market-leading position.

Being able to survive the pandemic will make a company stronger, while others facing challenges will become more open to being acquired. “For ambitious Chinese companies, now is a good time for M&A,” said Siu.

However, overseas competitors will not just sit back and wait. To grasp the opportunity and secure a meaningful position among global leaders, Chinese acquirers should further enhance their in-house M&A capabilities and attract talent with international experience and M&A expertise.

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.

The private equity (PE) landscape in Vietnam is becoming increasingly attractive to global investors due to improvements in regulations, governance and corporate profiles. In the early 2000s and before, there was very limited PE activity in Vietnam, a market characterized by a shortage of private enterprises and unclear regulatory framework on private investments. It was not until the 2005 Enterprise Law came into effect that Vietnam first established a common legal framework for the establishment and management of both State Owned Enterprises (SOEs) and private enterprises, boosting investors’ confidence for investments in private companies.

Along with the rapid growth of Vietnam’s economy, PE activity has soared since the second half of the 2000s. This can be attributed to a number of factors:

Integration with the global economy: Vietnam became a member of the World Trade Organization in 2007, committing to one of the world’s most progressive market access programs. This made Vietnam appear on more PE investors’ radar – in fact, some of the earliest notable transactions involving PE investors in Vietnam occurred in 2007, such as Temasek-Minh Phu and PENM Partners-Eurowindow. Since then, Vietnam has continued to participate in more free trade agreements to become an important node in the global economy.
Development of the domestic stock exchanges: The launch and development of HOSE and HNX in the early 2000s provided additional comfort to institutional investors in their consideration to include Vietnam as a part of their mandate. As Vietnam gradually becomes one of the most closely watched frontier markets and is on track to reach emerging market status, the country has continued to draw attention from global PE investors.
Easing of foreign ownership restrictions: There has been significant progress in unlocking market access for foreign investors since the early 2000s. Market access restrictions for specific sectors, once challenging to navigate in the past, are now clarified by the 2020 Law on Investment, which officially classifies restricted and conditional sectors in one consolidated source. Foreign ownership limits, once kept at 20%-30% for most sectors, now can be extended or have clear path to be extended to up to 100% for non-conditional, non-restricted business lines.
Improvement in corporate profiles: In the earlier days, many private enterprises in Vietnam were small founder-owned, family-run businesses, which lacked both corporate governance of international standards and experience in working with foreign investors. Nowadays, sizable, well-managed private companies are more common – these firms will now consider investments from PE investors as a strategic option in their growth trajectory and have also become more educated in M&A processes.
Regulatory landscape improvement: Local authorities have continuously provided clearer guidelines for M&A, as evidenced in various revisions of the Law on Enterprises, Law on Competition, and Law on Investment. For example, the latest 2020 Law on Investment has further addressed the ambiguity of existing regulations and clarified when M&A approval is required – a concern previously highlighted by many PE investors.

From the quiet days when there was only a handful of small value deals in the early 2000s, PE investors have been gradually playing a much bigger role in Vietnam’s M&A market. Larger deals involving PE investors have become more common – there were more than 30 deals valued at US$100m or higher over the last five years[1], while the top ten largest PE transactions of all time in Vietnam all occurred during this period. For Vietnamese businesses, PE funding brings in not only much needed capital for growth or additional liquidity for shareholders, but also important corporate governance guidelines and operational know-how of international standards for optimal value generation. Institutional presence among the cap table would also highlight the legitimacy and sustainability of the business models of local enterprises, which in turn enhance their attractiveness to more global investors.

Date	Investor	Target	Sector	Value (US$m)	Stake
Jun-20	KKR’s consortium	Vinhomes	Real Estate	651	6%
Oct-18	SK Investments	Masan Group	Consumer	474	9%
Aug-18	Hanwha Asset Management	Vingroup	Diversified	403	Undisc.
May-21	Alibaba, BPEA	The CrownX	Consumer	400	6%
Dec-18	Warburg Pincus	Techcombank	Financial Services	370	4%
Dec-21	TPG, Temasek, ADIA	The CrownX	Consumer	350	5%
Jul-19	GIC, Softbank	VNPay	Technology	300	Undisc.
Jan-19	GIC, Mizuho	Vietcombank	Financial Services	264	3%
Jun-22	Warburg Pincus	Novaland	Real Estate	250	Undisc.
Jul-21	General Atlantic, Dragoneer	VNPay	Technology	250	Undisc.

Figure 1: Top ten all-time largest PE transactions in Vietnam

Emerging trends

1. Rising competition in dealmaking from global funds: In the earlier days, most PE transactions in Vietnam involved local funds given their advantages in familiarity with the investment landscape, with examples such as Indochina Capital-Hoang Quan (2006)[2], Mekong Capital-MobileWorld (2007)[3], and VinaCapital-PNJ (2008)[4]. Over time, more and more global PE firms have established local presence in Vietnam, with dedicated investment teams and network of advisors on the ground to start building their track record in the country. While local funds remain active in the market, global funds, with stronger financial capabilities, have been dominating the investment landscape – as evidenced in the list of top ten all-time largest PE transactions in Vietnam

2. Minority vs. control/buyout transactions: Minority transactions are still more popular for PE investors in Vietnam given the lack of onshore deal financing options commonly found in buyout transactions and risk aversion as most funds still have relatively short track record in the country. However, the market has witnessed several buyout transactions in the past, especially in the Healthcare and Education sectors such as CVC-Phuong Chau(2021)[5], BPEA-Vietnam USA Society English Centers (2019)[6], TPG-Vietnam Australia International School (2017)[7], and Navis-Hanoi French Hospital (2016)[8]. From our recent interactions with regional PEs, we understand that there is a growing appetite for control/buyout deals in Vietnam, driven by both record levels of dry powder and the maturation of the investment landscape.

3. Growing importance of ESG topics : ESG topics are no longer considered as a matter of compliance but have become opportunities to unlock value and present key selling points to potential investors. More investors have been appointing specialized ESG advisors for due diligence, while aligning with the target companies on having strong ESG values ingrained in corporate culture as part of deal negotiation and post-deal integration.

Looking ahead – Sectors to watch for PE activity in Vietnam

Consumer

Although consumer confidence is temporarily impacted by the ongoing global macroeconomic turbulence, investors will continue to target Vietnam as one of the most attractive economies in the region.

Healthcare

Rising income level and increased health awareness among Vietnamese people will propel demand for private hospital and clinics, in response to the lack of capacity within the national healthcare system.

Education:

Before the emergence of Covid-19, investors showed significant interest in both local and international private schools.

Financial Services

The shortage of financing and credit solutions among an underbanked population is expected to drive investments in Financial Services.

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.

Technology

Difficulties caused by the pandemic have accelerated progress in digitalization, driving growth in demand across all industries for technology-related services and digital solutions that help businesses improve functionality.

The PE market in Vietnam has changed drastically since the early 2000’s as we have experienced more favourable conditions. Going forward, we expect not only the number of deals to increase, but the size of deals in Vietnam to grow as PE investors seek opportunities.

[1] Source: Mergermarket

[2] https://vnexpress.net/indochina-capital-mua-cp-hoang-quan-2696691.html

[3] https://www.mekongcapital.com/our-investment/mobile-world/

[4] https://www.investegate.co.uk/vietnam-opp-fund-ltd/rns/investment/200805021205506730T/

[5] https://www.dealstreetasia.com/stories/cvc-capital-phuong-chau-hospital-307941

[6] https://www.globalprivatecapital.org/newsroom/bpea-acquires-majority-stake-in-vus/

[7] https://www.vas.edu.vn/en/news/he-thong-truong-dan-lap-quoc-te-viet-uc-co-nha-dua-tu-chien-luoc-moi

[8] https://www.naviscapital.com/wp-content/uploads/2016/06/Navis-Press-Release-30-June-2016-Acquisition-of-Hanoi-French-Hospital.pdf

[9] https://en.vietnamplus.vn/over-70-of-vietnamese-population-use-internet/231833.vnp

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.

As we approach the halfway point in 2023, it’s clear that the luxury goods market in China and Asia is thriving. This growth is fuelled by the opening of borders post-COVID and the region’s increasing affluence. Today, China alone accounts for over one-third of global luxury sales.

As consumers in the region spend more on retail, beauty, food, lifestyle, and luxury items than ever before, BDA sees opportunities for foreign investors and companies to reach an eager and widespread Asian market.

In our latest insights report, we discuss China’s economy and explore opportunities in other Asian markets. We also identify the subsectors in the consumer and retail space which we anticipate will shine.

The key takeaways in this report are:

Asia’s luxury market continues to gain momentum, mainly driven by China
In China, retail sales in March 2023 alone jumped 10.6% YOY, a speed unseen in two years
The share price of some luxury companies have risen 10%-20% this year
A rebound in the Chinese economy, the millennial generation, and changing consumer preferences support the trend
Overall, Asian consumers are spending more on retail, beauty, food, lifestyle, and luxury items than ever before
This increase in demand opens the door to opportunities for foreign investors and companies
BDA has deep industry knowledge and extensive experience in advising clients on transactions in beauty & personal care, lifestyle & entertainment, mother & baby care, apparel & accessories, and the food and beverage industries

Download the full report

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.

China’s private equity (“PE”) industry faced strong headwinds in 2022 due to factors including a slowing economy, Covid-19 restrictions, increased regulatory scrutiny, and higher prevailing interest rates globally which weighed on public market valuations. PE exits and fundraising had been challenging during the past year.

However, the China market underwent a dramatic change in recent months as the country’s Zero-Covid policy was relaxed and borders were reopened. The Chinese government implemented measures to boost the economy and private sector investments. This report provides our perspectives on how these changes may impact PE activities and China M&A market in 2023.

The key takeaways in this report are:

The unwinding of Zero-Covid policies will benefit sectors such as consumer, tourism, and property. China’s growth story will be back in focus and investor confidence in the Chinese economy will likely revive. Looking ahead, consumer & retail, manufacturing, energy & resources, life science & healthcare, and logistics & supply chain industries will likely attract the most attention

China M&A market involving Financial Sponsors will be dominated by China GP’s investments in domestic targets. We also expect to see an increase in GP outbound investments in 2023 to diversify their portfolio outside of China

Trade sales and IPOs were difficult in 2022, leading to delays in portfolio company exits and fundraising for PEs. In 2023, we expect to see a greater number of portfolio company exits, with more quality assets coming to the market. We expect tightened regulations and the long backlog for public listings will continue to pose difficulties for IPO exits, and mean trade sale will be a more prominent exit route for PEs in 2023

PEs will likely focus on returning capital to LPs through portfolio company exits in 2023. We expect that fundraising will remain relatively subdued this year, followed by more fundraising activity from 2024 onwards as PEs complete more exits – and need to replenish their capital for new investments

Download the full report

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.

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

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.

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

The article was originally published in the September 2021 issue of Vietnam Economic Times

Huong Trinh
Managing Director, Head of Ho Chi Minh, BDA Partners

Despite Vietnam experiencing its fourth wave of Covid-19, merger and acquisition (M&A) activities will continue to remain strong. Since the beginning of this year, we at BDA Ho Chi Minh City have seen strong interest from large regional PEs (private equity firms) looking for sizable transactions. We are also observing strong demand for growth capital and exits from both founder-backed and private equity-owned companies, evidenced by numerous current live deals and strong pipelines/opportunities for 2021.

Vietnam’s macroeconomic fundamentals remain strong. In the International Monetary Fund (IMF)’s revised forecast released in July, the country is still on track to remain the fastest-growing economy in Southeast Asia this year, with projected growth of 6.5 percent. Vietnam also has one of the fastest-growing middle-class populations, with rising discretionary spending power, leading to high pent-up demand for goods and services that will contribute to economic recovery as the country opens up again later this year.

Key industries predicted to grow strongly

In general, Vietnam’s economy has remained resilient and maintained good momentum for growth across industries despite the recent surge of Covid-19. In addition to consumer and retail which has always been one of the most active sectors in Vietnam and is expected to rebound strongly in 2022 thanks to the recovery of consumer confidence, the following sectors have been attracting a lot of interest.

We believe that IT & Technology and especially the internet-related segment will achieve the strongest growth in Vietnam, and that there will be a strong pipeline of opportunities for the sector in 2021 and upcoming years. Difficulties caused by the pandemic have driven growth in demand across all industries for technology-related services and digital solutions that help businesses function normally. In a post-pandemic world, there will be a continued push for swift digitalization, and M&As will be the fastest way for businesses to achieve this goal. Also, Vietnam’s internet economy has been growing rapidly during Covid-19, and we expect this trend to continue as there have been long-term changes to consumer habits and dynamics. The pandemic, for all its negative impacts on health, society, and economy, is propelling the growth of e-commerce and digital finance in Vietnam, paving the way for the country to fulfill its digital potential. According to the Ministry of Industry and Trade, Vietnam’s e-commerce market grew 18 percent year-on-year in 2020 to $11.8 billion, while traffic on e-commerce platforms was 150 percent higher than in 2019.

Pharmaceuticals is an industry that has attracted a lot of interest from foreign investors in recent years, with notable transactions including Taisho’s acquisition of a majority stake in DHG Pharma and SK’s recent investment in Imexpharm. According to BMI Research, Vietnam’s pharmaceutical industry could reach $7.7 billion in 2021 and $16.1 billion in 2026. A growing middle class, urbanization, and a young population are driving domestic demand for all aspects of healthcare, including expenditures on pharmaceuticals. As a defensive sector, pharmaceuticals will continue to achieve strong growth as Vietnam transitions out of the pandemic period. The industry is set to benefit greatly from the government’s national strategy to promote domestic manufacturing. To compete with imports, M&As with foreign strategic investors will continue to be crucial for local manufacturers, enabling them to meet global pharmaceutical standards through transfers of technology, R&D, and management expertise.

Renewable energy has also become an interesting sector for M&A activity in Vietnam over recent years, and we expect deal flow to resume as the country gradually opens up. With a rapidly growing economy, Vietnam has been at risk of power shortages as demand exceeds supply due to a lack of power infrastructure, and capital injections into the development of renewable energy could provide a good solution. Vietnam became the largest solar energy market in Southeast Asia in 2019, attracting foreign investors in mega plants in Binh Phuoc, Tay Ninh, and Ninh Thuan provinces, given the more attractive feed-in-tariff schemes compared to other countries in the region. Buyers have also been active with acquisitions of onshore and offshore wind farms in the central highlands and central coastal regions, which boast huge potential given their ample wind resources.

In Vietnam’s real estate market, M&A remains the quickest solution for foreign developers to enter the country and for local developers to expand their land portfolio. An increase in real estate M&A activity is expected this year, as various projects will be approved thanks to new improvements in the Law on Investment, after lengthy delays in the review process in previous years. Investors have accumulated a lot of capital, which is waiting to be deployed as the economy recovers, while owners struggling from the impact of the pandemic are willing to sell at lower valuations. Within the sector, industrial real estate has seen more activity in 2021, as multinational companies continue to shift their manufacturing bases from China to Vietnam despite the ongoing pandemic. Meanwhile, deal flow in residential real estate is expected to recover in the latter half of the year, as postponed transactions are resumed when travel restrictions are loosened.

Manufacturing, one of the sectors temporarily hit by Covid-19, will also provide opportunities to buyers who are confident of a strong economic recovery. Vietnam has been emerging as a manufacturing hub in the region given its low labor costs, its strategic location and many seaports nationwide, and its increasing participation in free trade agreements. For these reasons, its manufacturing sector will remain attractive to foreign investors, especially given ongoing China-US trade tensions, resulting in the relocation of manufacturing hubs from China to Vietnam. Domestically, there could also be a pickup in M&A activity, as we might see a trend in the consolidation of struggling small and medium-sized players into respective market leaders. Demand for growth capital from businesses looking for internal transformation and rebuilding post-pandemic will also present opportunities for investors looking for high-quality assets at attractive valuations.

Common risks and opportunities

Some of the common risks include uncertainty in the legal framework, especially new laws that came into effect recently, quality of information, as some companies still do not apply best practices in bookkeeping, an unfamiliarity among Vietnamese sellers with M&As and the basic concepts and processes involved, and cultural differences during deal negotiation and post-deal integration.

M&A transactions in Vietnam are largely governed by the Law on Enterprises, the Law on Investment, and the Law on Competition. Recent changes in these laws have posed additional challenges to potential buyers. For example, under the new Law on Competition, a substantially higher percentage of M&A deals are subject to merger control filing requirements, and the evaluation process could potentially add months of uncertainty to the timeline of a deal. Quality of information is also a common issue for foreign buyers, as target companies do not always have an organized information system that meets their requirements.

The current postponement of inbound international flights due to the pandemic also makes it difficult for buyers to conduct in-depth due diligence through site visits and face-to-face meetings. Additionally, foreign buyers might be unfamiliar with cultural differences in corporate governance practices in Vietnam. Many target companies are founder-owned, family-run businesses, which may not yet see the value-added of foreign strategic and financial partners or be open to international corporate governance standards. Last but not least, Vietnamese sellers lack knowledge in terms of how the M&A process works and is structured, which will create uncertainties.

Despite the existing drawbacks, it is important to acknowledge that compared to a decade ago, the perception of M&As in Vietnam has changed dramatically among government agencies, business owners, and investors/buyers and in a positive way. Authorities are continuously improving their turn-around times and responsiveness, while working toward new guidelines for M&A transactions, with the new Law on Enterprises, Law on Investment, and Law on Securities having come into effect on January 1, 2021. Shareholders are now more open to adding M&A as a strategic option in their growth trajectory and are becoming more educated in terms of M&A processes and key concepts. We see that sellers are taking a much more structured approach for large domestic deals or cross-border deals by engaging relevant advisors, who will help mitigate risks for foreign buyers by working with them through a transparent process. As BDA has a local team in Vietnam, we have been fortunate and pleased to be trusted by many local business owners and have given them advice and helped them run structured deal processes along the way.

We remain confident in the availability of opportunities in Vietnam’s M&A market. From a macro level value creation process perspective, Vietnam will continue to enjoy: (i) stable, unparalleled economic growth compared to other Southeast Asia countries, especially amid Covid-19; (ii) an influx of advantages from recent free trade agreements; and (iii) a strong government push to equitize State-owned enterprises. From a micro-level perspective, Vietnamese companies are becoming more professional with stronger management teams and better corporate governance. They are more open to foreign investors as they see the different values that both strategic and financial investors can bring.

Anticipated M&A deals and volume in next six months

Companies looking to position themselves for recovery in the post-pandemic economy will need new capital injections for internal transformation and further growth to remain competitive, and they will be eager to restart conversations with buyers for deals that were put on hold or lost. Within businesses in industries such as F&B, manufacturing, and industrials that have been negatively affected by the pandemic, there are still a lot of sizable and high-quality assets in the market. This environment will create opportunities for an increase in deal flow linked to dislocation, as sellers are more willing to close deals at a lower valuation in exchange for immediate access to growth capital. Until travel restrictions are loosened, local investors will have an advantage over foreign counterparts in such transactions, given their presence in Vietnam and their ability to run quicker processes and provide liquidity to businesses in need. We also expect to see a consolidation trend in M&A transactions, as market conditions have become challenging for small and medium-sized enterprises (SMEs).