Low valuations, strict liquidity conditions slow M&A activity

Low valuations, strict liquidity requirements and lack of clear regulations are the main reasons behind slower-than-expected merger and acquisition activity in Vietnam, which experts of VinaSecurities and law firm Duane Morris LLC have pointed out.

Adrian Cundy, head of research at VinaSecurities, told a business luncheon organised by the European Chamber of Commerce in Vietnam (EuroCham) in HCM City on Thursday that the prospects of M&A activity here were bright but still affected by a number of internal and external factors.

“A couple of things drive M&A, and of course valuations are important to the buyer and seller. Sellers are not motivated when valuations are low and valuations currently are low,” Cundy explained to the Daily after the business luncheon.

Tight liquidity conditions also put a break on M&A activity as forecast by both local and foreign experts for the Vietnamese market after the global economic recession.

“People cannot re-finance their loans or raise that financing very easily at a reasonable cost, then of course it is another technical barrier,” Cundy said. This is one of the reasons why the value has not been as it was expected.

A survey conducted by PricewaterhouseCoopers and Thomson Reuters support Cundy’s view that M&A deals in Vietnam last year grew a mere 2 percent year-on-year in value to nearly $1.14 billion while successful transactions numbered 295, an whopping increase of 77 percent from a year earlier.

In order for M&A deals to take place, people need a transparent process before putting their money at risk. But, there remain bureaucracy and administration barriers to pooling capital into Vietnam, especially from the foreign side as the expert speakers agreed at the luncheon entitled “The Right Time to Invest? The Vietnamese Capital and M&A Markets in 2010/2011.”

“So, it has to be transparent, low risk and not very bureaucratic for foreign capital to flow in the economy easily. I think there is still a little bit about the administrative process that gets in the way,” Cundy said.

Mark Oakley and Giles Cooper of Duane Morris LLC pinpointed the absence of full and clear definitions and procedures for M&A, which involves a wide range of legal areas for labour, tax, licensing, land among others.

Despite the problems, the speakers were optimistic about M&A in Vietnam, particularly in a long term. “I’m positive for the recovery of M&A until 2011 that it has rebounded this year” because of recovery in exports and better global economic conditions,” Cundy said.

“Hopefully, that would translate into high M&A flows. If the market improves and market valuations improve, we will see a lot of domestic M&A activity,” Cundy said.

Matthias D’hn, executive director of EuroCham HCM City, said at the opening of the event that the rise in both the number and the value of M&A deals in Vietnam last year and early this year signaled that M&A would be booming in the country in 2010-2011.

Preliminary figures of PricewaterhouseCoopers and Thomson Reuters showed M&A in the first half of this year numbered 172 deals and registered $584 million compared to 112 deals and $232 million respectively in the same period last year.

D’hn quoted the Vietnam Competition Bureau’s forecast that M&A in Vietnam would expand by 30-40 percent annually in years to come. One of the contributors is the equitisation of State-owned enterprises as a result of growing demand for streamlining operations to improve competitiveness.

Cundy also said in his presentation that the market on valuation bases was as cheap as it was because the index was low. “I think there are good blue chip companies out there. I think Vietnamese investors should be looking closely at blue chip companies and need to buy them for the long run.” – Saigon Times

Tags: Vietnam M&A