Advising clients in Hong Kong since 2000

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

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

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

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).

About BDA Partners

Huong Trinh, Managing Director and Head of Ho Chi Minh at BDA Partners, shares insights on Vietnam M&A market, including growth sectors, cross-border activity, digitalization, and the rise of SPACs.

Which industries do you see picking up in the SE Asia region, largely with the focus on Vietnam?

Internet-related businesses have been growing rapidly of late. Consumer behaviour is changing, and this is a long-term sustainable shift in consumer dynamics. Average order value on e-commerce sites rose by over 35% year-on-year in the first half of this year.

For the industrial sector, COVID-19 has been certainly a catalyst for business owners to consider a transaction. The underlying reason was the fundamental change in the economic outlook domestically and globally, which has urged a number of investors to look for a more stable and “safer” destination while its business owners see the
benefits of having a “big brother” who is financially stronger with them to grow the business, especially during unstable periods.

Healthcare is another attractive sector for investors. The sector will likely see lower cash flow compared to 2019. Hospitals face a huge negative impact on revenue as they have had to cancel many profitable surgeries and procedures, while investing more in staffing and getting extra protection equipment for work. In contrast, personal protective equipment companies are seeing a significant revenue growth and the pharmaceutical sector will continue to grow strongly post-pandemic.

Industrial real estate and logistics will also grow, thanks to multinational companies shifting their manufacturing base from China, and the requirement for logistics and supply chains to keep up.

Sectors that have been temporarily hit by COVID-19, such as food & beverage, hospitality and discretionary retailing, present opportunities at attractive valuations for buyers who are confident of a strong bounce back.

How do you see international investors completing transactions with Vietnam’s borders still shut?

We signed/completed 5 transactions so far since COVID-19 without the buyers coming into Vietnam for the signing/closing.

This has been a key concern when COVID-19 started, but as we came along it is really a matter of how much both sides like the deal and how we, as the advisor, add value. We see that people have been very creative in the process, for example the investor can hire a local advisor to do the site visit/management meeting on the ground in Vietnam, the local team can take high-quality video on the assets, etc. These creative approaches will help very much to get the deals done.

We at the BDA Ho Chi Minh City office are observing a large 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.

What are the trends you see in cross-border activity?

Compared to a decade ago, perception towards M&A has changed drastically among business owners, government agencies and investors/buyers in a positive way. As Vietnam’s economy opens up, we have witnessed more and more large cross-border deals that brought positive growth to the target companies and benefits to all stakeholders. We see people are taking a much more structured approach for large domestic deals or cross-border deals which require the involvement of all relevant advisors as they see the benefits of having an official process and advisors in place:

better positioning the company
consistent and organised approach
more competitive process can create better valuation and terms
increase the certainty
professional advice will definitely help get better outcome and reduce risks

As BDA has a local team in Vietnam, we have been fortunate and pleased to be trusted by many local business owners to give them advice and help them run a structured process along the way.

Discuss the growth of digitization especially in the M&A environment in SE Asia?

Overall – the digital economy has been growing exponentially. The COVID-19 pandemic, for all its negative impacts on health, society and economy, is expediting the growth of Vietnamese e-commerce and digital finance, paving the way for the country to fulfill its digital potential. Traffic on e-commerce platforms in 2020 was 150 percent higher than the previous year, with approximately 3.5 million visitors per day on various platforms.

Can you comment on the rise of SPACs?

There are tremendous benefits of considering a SPAC buyer in a sale process, opening opportunities for growing companies in developing markets that wish to participate in other established markets’ capital markets:

Valuation: Robust public market valuation with retail participant
Speed to market: Ability to secure capital commitments within 4-6 weeks vs. IPO with 3-4 months of market risk before roadshow
Certainty: Less sensitive to general equity backdrop and market windows
Flexibility: Ability to fully disclose financial forecasts to support investment case; Structural flexibility for integration of earn outs/conditional fees and more incentive driven deal constructs

About BDA Partners

Simon Kavanagh, Partner and Head of Industrials at BDA, shares his views on where we will see the most M&A activity within Industrials in Asia, in terms of sub-sectors, markets and key players in 2021 and beyond.

– Which are the most active sub-sectors in Industrials in Asia in terms of M&A activity since 2020?

There are two sub-sectors within Industrials where we’re certainly seeing a lot of activity. One is general component manufacturing, both metal components and plastic components. The automotive sector in particular has rebounded from a low in 2020, and we are seeing several deals in the marketplace currently. Component manufacturing then extends up into EMS and assembly, and there’s quite a lot of focus on electronic components, especially where there’s a technology angle.

The general trend for 2021 onwards is that technology is key. The R&D capabilities of target companies are scrutinized very closely by investors and the extent of their technology expertise has a meaningful impact on valuation. For pure play component manufacturing companies, with less of a technology angle, there is less demand, and appetite and valuations are lower.

Another sub-sector where we are starting to see increased activity is in waste recycling. This ties into the general mega theme towards ESG, which is becoming an attractive investment sector and one which funds and LPs are actively looking for opportunities.

– At the end of 2020, BDA closed a milestone transaction in the semiconductor sector with the sale of Compart to Shanghai Wanye. Compart is a leading global supplier of semiconductor components and assemblies, headquartered in Singapore with manufacturing plants in China and Malaysia. Do you see more opportunities in this subsector? Who are the most active investors?

The sale of Compart was a very successful transaction, for both buyer and seller. The investment environment is strong and there are several additional semiconductor related transactions coming to the market. BDA is currently working on a number of these, each in a different stage of the semiconductor manufacturing supply chain.

China has made it a priority to strengthen its domestic semiconductor capability and Chinese companies are keen acquirers. There is a strong willingness for Chinese corporates to borrow money and for private equity firms to commit capital to semiconductor related targets.

We expect the Chinese pace of investment in the semiconductor sector to continue for the next few years. It is an industry where most of the manufacturing and the technology is outside of China, either in Taiwan, Korea or the US. So there is a strategic value to the companies they are buying, even if valuation is relatively high. Private equity firms specialising in the semiconductor sector have sprung up. Wise Road Capital is one of the better-known ones: earlier this year it acquired MagnaChip in Korea for US$1bn. It was unusual for a Chinese company to buy something in Korea of that size, but it followed their 2020 acquisition of United Test and Assembly Center.

– How do you view the acquisition appetite of financial sponsors versus strategic investors for the Asian Industrials sector?

Financial sponsors have the upper hand at the moment and that will continue throughout 2021, until the macroeconomic environment stabilises and travel restrictions are lifted. The investor universe for industrial companies is weighted quite heavily towards Asian financial sponsors, with some activity and interest from Asian strategics. However, financial sponsors are much more flexible in terms of considering cross border M&A in the Covid-19 environment and being able to complete due diligence virtually.

Sponsor investors across the board are looking to increase their exposure to the region. Several international private equity firms have raised large Asia-only focused funds since 2020, including KKR, Blackstone and Carlyle. China-focused private equity firms (Boyu, Primavera, Fountainvest, BPEA, Hillhouse and PAG) are also investing or raising billion-dollar funds.

Strategic investors tend to be a little more conservative. It has not been a priority for US or European corporates to make significant investments in Asia these past couple of years: they have tended to focus on their home markets. The difficulty of doing site visits under the current Covid-19 travel restrictions has more of an impact on them, than on financial investors. However, while it is early stages, BDA is starting to see a change in the trend with a noticeable increase in the number of corporate clients calling us in 2021 to discuss buyside roles in Asia.

– China outbound M&A in 2020 was the lowest level in the last decade. Do you still see Chinese investors having a conservative view in outbound industrial deals in 2021?

The volume of China outbound M&A has come back from the low of 2020. Outbound volume in Q1 2021 was up 15.9% YoY. But in general, yes, the heyday of Chinese outbound diversification has gone. US assets are still out of favor due to geopolitical tensions. Europe is attractive, but acquirers are far more cautious, both in terms of what they buy and how much they pay for it.

When they do make acquisitions it’s the technology that is most critical. China’s next stage of development is very much towards being at the forefront of technological leadership and R&D capabilities. They are looking at what this target can bring to them in the industry. Does it have something that is not essentially in China already? What can a new Chinese owner do to win Chinese customers for this foreign company? Does the target company have some special intellectual property or is it the leading expert in a particular niche? Technology will remain the key driver for outbound M&A for many more years.

– SPACs have been a hot topic recently. What impact do you think SPACs will have on the industrial sector in Asia?

Not much of an impact. SPACs tend to focus on high growth companies that are looking at raising capital and want to do an IPO, but are less suited to the more traditional routes for public listing. There are not many industrial companies that fall into that category. Local Asian SPACs are still not regulated or available / approved by regulators in either Hong Kong or Singapore, although that will change in due course. In order to pursue the SPAC route in either the US or Europe, the business needs to be big, like Grab. But if you’re a US$1 billion valuation Industrials company, you won’t need to sell new shares to raise capital, and if you’re looking for liquidity you will probably just go and do a normal route IPO or sell to a financial sponsor.

– Is the shift of manufacturing capacity to Vietnam, at the expense of China, continuing?

Yes, the trend will continue for the foreseeable future. Vietnam still has a significant cost advantage over China, particularly for labor-intensive industries. Companies are not necessarily moving their entire supply chain from China to Vietnam, but if they are adding capacity, it’s less likely that they will be making that capital expenditure in China. Vietnam, as well as Malaysia to some extent, are continuing to benefit because of their well-qualified workforce of engineers and a friendly FDI regulatory environment.

With our strong BDA Partners team on the ground in Vietnam, we are seeing and working on a lot of founder-owned sellside transactions where the target companies are very attractive bolt-on acquisitions for strategic investors. We’re witnessing the start of a shift, where a generation of founders of some very successful Vietnamese companies are looking for liquidity, and they need access to an international investor universe and an advisor to help guide them through an M&A process.

About BDA Partners

BDA Partners合伙人、中国业务联席主管兼私募基金客户负责人萧寅康(Anthony Siu)就中国的并购、私募股权退出和境外并购活动前景分享了看法

1. 2020年是中国境内并购创纪录的一年。您认为2021年这种情况还会继续吗？

我认为中国的境内并购趋势还在继续，甚至在2021年及以后会加速。2021年迄今，境内并购交易一直处于创纪录水平，已经公布了800亿美元的交易，开年交易额为史上最高。这一时期的并购交易额是2020年同期的三倍。

2020年上半年，新冠疫情对中国并购市场产生了重大影响，但从下半年开始，市场大幅反弹。中国买家重点关注境内并购，这主要是由于欧洲和美国的地缘政治紧张局势、旅行限制、新冠疫情的严重影响，以及重心向中国国内需求转移。我们看到越来越多的国内企业加快了在中国扩张的计划。各企业纷纷利用这次机会巩固国内市场，加快增长，并从自己所在的地区扩展到全国。在某些行业，一些全国范围内的领军企业正崭露头角。鉴于中国致力于提高自力更生能力，而且经济仍在不断增长，我预计将出现进一步的国内并购整合。
就行业而言，国内买家最青睐消费品和医疗保健行业。中国可支配收入增长正在推动消费升级，因此消费市场将继续增长。大型企业希望通过收购来加速渠道网络和市场份额的扩张。我们预计医疗保健领域也将出现更多的境内收购活动。战略参与者正在想办法在快速增长而分散的市场中扩大市场份额。例如，在医疗保健服务领域，出现了许多与医院、专科诊所和康复中心相关的并购活动。

2. 您认为2021年中国家族企业主／创始人是会偏向于通过IPO，还是通过出售股权退出？

我认为两者皆有。过去一年里，IPO市场持续火爆。科创板市场使规模较小、增长快速的公司能够以有吸引力的估值上市。对于短期没有计划退休或退出的创始人，或者拥有高增长业务但在早期难以售出的创始人，他们会偏向于IPO途径。但对于传统行业（如工业制造和消费及零售）企业的创始人来说，出售股权对他们来说可能是一条非常有吸引力的退出途径。战略和私募股权买家青睐现金流强劲的市场领导者，而具有这些特征的目标企业也能吸引众多买家。

3. 您认为新冠疫情会如何影响私募股权所有者退出投资的时机和计划？去年，由于不利的商业环境，一些私募股权卖家推迟了他们的投资组合公司退出时间。未来应该会有更多的私募股权退出投资，以清理项目积压。今年上半年，一些私募股权公司在等候目标公司确立清晰的财务和经营业绩的回复路径。我们预计今年下半年，通过卖出股权的退出将会增加。

4. 您认为2021年会有不良资产投资／重组并购机会吗？是境内还是境外资产？中国市场机会不太多，因为新冠疫情的影响比较短暂。一些企业杠杆过高的情况发生在新冠疫情之前，而且已被迫采取一些减低债务的行动。在过去的1-2年里，我们看到了许多这样的剥离活动。

在中国境外，一些危困企业急需流动性，因此可能有更多不良资产投资和重组机会。随着中国买家在境外投资中变得更加活跃，我们可能会看到更多的海外资产重组交易。

5. 2020年的中国境外并购交易额是过去十年中最低的。您认为2021年会出现反弹吗？如果会，哪些行业或国家会比较有吸引力？

自今年年初以来，我们已经看到了海外并购复苏的早期迹象。中国企业在境外交易中越来越活跃，不断向欧洲、其他亚洲国家（如新加坡）及快速增长的国家（如越南）扩张；但在美国的交易较少，因为中美的紧张关系造成了重大的交易不确定性。随着疫情的缓解和边境的重新开放，今年剩余时间内境外交易量应该会有所增加。我认为对外投资者将继续青睐工业和医疗保健等行业。由于电子商务的繁荣，另一个受益于疫情的行业是运输和物流。

6. 您如何看待拜登政府时期的中美地缘政治关系？

在特朗普政府时期，中美关系可能已触及最低点。我认为拜登政府明白中美关系是美国最重要的战略关系之一，因此将对中国采取强硬但务实的态度。美国企业在中国有大量投资，它们需要得到保护。在许多方面，中国都是世界上最大的市场，美国不能忽视这个机会。另一方面，中国将继续开放国内市场。政府已经取消了对外国直接投资的许多限制。展望未来，我预计美国企业在中国投资的兴趣将会回暖。

7. 新达成的中欧协定会促进2021年的跨境并购吗？

中欧协定主要关注中国市场对欧盟的开放。它对各个行业都有帮助，例如，新能源、医疗保健服务、金融服务；以及传统上受政府保护的领域。欧盟公司将从这一协定中受益，因为中国将对欧盟投资开放这些行业。就并购而言，我们预计将有更多的欧盟公司会通过直接收购或战略投资增加在中国的投资。然而，最近欧盟和中国之间的制裁争端使该协定的批准成疑。我相信，如果该协定被取消，双方利益均会受损，所以希望双方能找到避免事态升级的方法，使协定重回正轨。

SPACs are the hottest story in financial markets globally, today.

Special Purpose Acquisition Companies (“SPACs”) have been around for 30 years, but they blossomed in 2020, in the US market. 248 SPACs launched last year, raising a total $83bn in proceeds.

And the craze keeps getting hotter: in January and February 2021 alone, 188 SPACs raised $58bn, just in the US.

This rising tide shows that the SPAC approach is, for now, seen as a legitimate and quicker alternative to a traditional US IPO. And yet SPACs are in favour and controversial for the same reason: highly favourable economic returns to SPAC IPO sponsors, market challenges caused by the pandemic, and the apparent execution, pricing and liquidity certainty offered by SPACs, for both investors and target companies.

Today, 300 SPACs are searching for acquisition targets to de-SPAC within a limited timetable, typically two years. As the US becomes saturated, SPACs are increasingly looking for opportunities in South East Asia and Greater China, where companies backed by private equity and venture capital are demonstrating compelling growth and value prospects.

Total deal value of Asia-focused SPACs (US$bn)

This year, we’re beginning to see Asian sponsors listing SPACs in the US.

And yet only two Asian countries, South Korea and Malaysia, allow SPACs to list today.

SE Asia is arguably the most fertile ground for acquisitions by SPACs, due to the vibrant technology startup scene and smaller domestic IPO markets. This raises the question of whether financial hubs like Hong Kong and Singapore should themselves consider becoming more SPAC-friendly.

But for now, Asian companies are mostly looking to SPACs in the US.

Here are some of the ways Asian markets are engaging with SPACs – or resisting them.

1. CHINA

China is the go-to model for the South- and SE-Asian technology unicorns. Alibaba and JD.com are Chinese giants with dual US-China listings. Political pressure and rampant local multiples have encouraged Asian companies to explore regional markets, not just NASDAQ.

Notwithstanding the trade war, NYSE and NASDAQ have expressed willingness to continue to entertain China-related SPACs.

US billionaire Dan Och and his family office, Willoughby Capital, own 5.6% of Primavera Capital Acquisition Corp, a SPAC led by Fred Hu, formerly of Goldman Sachs China, hunting for a consumer target with a significant presence and potential in China. Primavera raised $350m in an NYSE IPO.

Fang Fenglei, founder of HOPU, is active via HH&L, a SPAC, now chasing a China healthcare target.

CITIC Capital raised $240m for a SPAC targeted on the energy efficiency, clean technology and sustainability sectors, in China and beyond.

The Shanghai Stock Exchange’s Sci-Tech Innovation Board (STAR Market), has attracted many high-growth startups. The popularity of these platforms offers issuers potentially stratospheric valuations, without going down the SPAC route.

New Frontier Group, an asset manager run by Anthony Leung, Hong Kong’s former financial secretary, merged Chinese private hospital United Family Healthcare with its SPAC on the NYSE in 2019. New Frontier Health is still trading below its $10 IPO price, and is soon set to be taken private by a consortium, again led by Leung, valued at only $12 a share.

Octillion Energy, a privately-held US and China headquartered electric vehicle powertrain solutions provider recently hired Bank of America to explore a potential acquisition by a NASDAQ listed SPAC instead of a trade sale.

2. HONG KONG

Hong Kong and Singapore are taking divergent approaches to the SPAC boom, as they watch Asian unicorns explore future listing structures.

The Hong Kong Exchange prefers traditional IPOs and is treading a more cautious path.

Hong Kong has long been one of the world’s top IPO destinations alongside New York and Shanghai, and it has been skeptical about non-IPO listings. In recent years, HKEX has been tightening rules on backdoor listings and shell activities. Regulators in Hong Kong and mainland China have been working hard to streamline and simplify conventional IPO listing procedures and requirements, reducing the appeal of the SPAC route. Hong Kong already allows pre-revenue biotech companies to list on its main board.

Model Performance Acquisition, a Hong Kong-based blank check company led by ex-Templeton Asset Management North Asia PE co-head Claudius Tsang, has filed with the US Securities and Exchange Commission (SEC) to raise up to $50m in an IPO.

Ace Global Business Acquisition is a Hong Kong blank check company targeting gaming and e-commerce in China, Japan and SE Asia, launching a US IPO. The company is led by Eugene Wong of Whiz Partners Asia and the China Hero PJ Fund.

HKEX’s CEO Calvin Tai said the bourse “will open our eyes and ears, listen to the market, and watch other markets” when it comes to future IPO regulations.

In 2020, 154 companies raised a combined US$52bn in IPO proceeds in Hong Kong.

3. INDIA

An array of Indian companies, valued at $30bn or so in total, are considering SPAC deals in the US. For example, Indian ecommerce pioneer Flipkart, owned by Walmart Inc, is mulling merging with a blank-cheque company in the US, potentially at a $35bn valuation.

SPACs are scouring India’s more mature targets. Last week, ReNew Power, one of India’s largest renewable energy groups, unveiled plans to go public in New York through an $8bn deal with a SPAC. ReNew Power is an Indian renewable energy company, with an asset base of 8 GW, of which 5 GW is operational. It is now exploring a dual listing in Mumbai.

Baring Private Equity Asia is considering listing US-Indian health tech company, Citiustech Healthcare Technology Pvt., in the US through a SPAC merger. Baring is hoping for a valuation of US$1bn for Citiustech. Baring only acquired its majority stake in Citiustech in 2019 for US$750m.

4. INDONESIA

Indonesia is a less mature market, but with a huge consumer population and a growing online economy. This has created four unicorns to date. Naturally they have considered the merits of listing via SPAC.

The Indonesia Stock Exchange is the third Asian market, after Hong Kong and Singapore, to consider allowing SPACs to list. Last year, there was only one SPAC deal involving an Asian company. Only five Asian start-ups have listed via SPAC since 2016.

Ecommerce leaders Tokopedia and Bakalapak, and airline ticketing and hotel booking services player, Traveloka are all considering SPAC mergers today. SPAC deals may be just one step along the way: a proposed $18bn merger between Tokopedia and ride-share giant Gojek could lead to a dual listing in New York and Jakarta.

The biggest SPAC focused on SE Asia is Bridgetown Holdings, backed by Richard Li and VC Peter Thiel. Bridgetown raised $595m, and is exploring a potential merger with Tokopedia that could value the unicorn at $8bn-$10bn.

Provident Acquisition is a $200m SPAC launched by SE Asian fund Provident Growth. Provident backed Gojek, Indonesia’s biggest start-up, and Traveloka.

5. JAPAN

Japan doesn’t allow SPACs on its domestic markets. The Japanese authorities don’t consider SPACs to be sufficiently transparent or safe in regulatory terms, as a path to IPO, or as an investment vehicle.

SoftBank is listing two new SPACs on NASDAQ. The Japanese conglomerate will raise $480m to acquire businesses in the AI sector. SoftBank’s SPACs are funded primarily by its Vision Fund. SoftBank listed its first SPAC in the US in January 2021, raising $525m.

6. SINGAPORE

The Stock Exchange of Singapore is likely to approve the formation of SPACs in Singapore.

Singapore’s IPO ranking is far behind Hong Kong, while it has suffered a slow-burning delisting trend in recent years – making it more receptive to SPACs as a growth engine.

The Singapore Stock Exchange is home to more old economy companies and REITs. SPACs would be a natural step for Singapore to attract new economy listings.

The spectacular rise of Sea, the Singapore gaming and ecommerce company listed on NYSE, was one of the world’s best-performing stocks in 2020.

Grab, backed by SoftBank and Shinsegae, is exploring going public in the US through a merger with a SPAC to speed up its listing process. Grab is a “super app” that offers multiple conveniences, including ride-hailing, financial services and food delivery. The platform has traction in eight countries — including Singapore, Indonesia, Vietnam and Thailand. Its mobile app has been downloaded more than 14 million times. This comes after talks to combine with Indonesian rival Gojek collapsed. See above.

Singapore’s on-demand bus service provider Swat Mobility is contemplating a Japan IPO to fund its expansion, or else a merger with a US SPAC to gain a listing there.

COVA Acquisition, Crescent Cove’s $300m SPAC, listed in February, is now scouting for targets across SE Asia.

L Catterton Asia Acquisition Corp launched this week as a consumer tech-focused $250m IPO on NASDAQ.

SPACs formed in 2021, searching for targets in Asia

Source: Dealogic, Mergermarket

Investors have already poured almost $3bn into SPACs focused on acquiring Asian companies this year, nearly doubling the amount committed during all of 2020, according to Dealogic. While modest by the standard of American companies, BDA understands that several Asian private equity firms are hoping to join the stampede.

The gold-rush mentality is causing concern from sponsors looking to invest, about inflated valuations for young businesses. Asian management teams at fast-growing companies are typically unprepared for the regulatory requirements of a US listing. Asian markets are simultaneously tightening restrictions on backdoor listings which avoid the independent due diligence process on a traditional IPO.

As described above, many of Asia’s most high-profile entrepreneurs and CEOs are playing in the SPAC pool. In addition to Fred Hu, Ken Hitchner, ex-head of Goldman Sachs Asia Pacific, Li Ka-shing’s son Richard Li, and Peter Thiel, the US tech investor, have all backed significant SPACs focusing their aim on SE Asia.

Most of SE Asia’s burgeoning unicorns are still valued below $3bn, which was the traditional minimum value for an IPO in the US.

As a result, Asia-focused SPACs are chasing a limited pool of viable targets.

However, Asia’s limited history of companies successfully going public via SPAC could weigh on the region’s prospects.

Sponsors have also come under scrutiny for their own lucrative compensation, typically a 20% stake in the company.

They have flocked to the US, where investors show apparently limitless appetite for blank check firms, while the larger exchanges in Asia still do not allow SPACs to list.

SPACs feel like a reflection of the mature bull market. The exuberance has sparked debate among investors and bankers about how long the trend will continue, and whether there will be enough suitable targets to be merged, if the frenzied pace of fundraising continues.

Many observers expect the SPAC mania to end badly – but not before more investors, CEO, bankers and sponsors have ridden the wave for a while longer.