M&A – Solution for Joint Development

After the worst economic crisis in more than five decades, many Vietnamese enterprises accepted mergers and acquisitions (M&A) to make business viable and maintain development.

A spreading boom in M&A

M&A transactions are presently seen most frequently in the banking sector because, according to the Government’s Decree No 141/2006/ND-CP dated November 22, 2006, a credit institution must have an authorised share capital of at least VND3 trillion by the end of 2010. According to this rule, all credit institutions have to submit their plans for increasing capital by June to the State Bank of Vietnam; otherwise, they will not be allowed to expand their branches or transaction offices.

Under that pressure, small banks have sought for every feasible method to raise their registered capital to the limit like issuing stocks and bonds, calling for investment, or accepting M&A agreements.

However, M&A is not very attractive to capable investors because global economies in general and the Vietnamese economy in particular have not totally escaped from the crisis. After the crisis, sovereign debts are becoming a new woe to the economic development. Hence, it is not easy to sell shares or find foreign partners. Nonetheless, M&As are still very active.

Since 2010, many M&A of banks and leading corporations have been reached, including PetroVietnam and OceanBank, Tin Nghia Bank and Dai A Bank, BNP Paribas and Orient Commercial Bank, and Maybank and An Binh Bank.

Malaysian Maybank acquired 15 % of equity in An Binh Bank (ABBank) at VND2,200 billion, or VND50,000 per share. According to experts, this M&A deal benefits both Maybank and ABBank.

After merging with PetroVietnam, a strategic shareholder, OceanBank became a big lender in the country. To survive and develop, Orient Commercial Bank (OCB) has sold 10 % of its stake, worth VND120 billion, to France’s BNP Paribas Bank, aiming to enhance its financial capacity, look for opportunities to sell services, gain experience and learn techniques from the French bank.

Pros and cons of M&A

M&A is sometimes the only way for both companies to exist and develop, particularly in times of economic crisis. According to financial experts, the objective and nature of M&A is “one plus one is three,” which is commonly known as synergy.

Following an M&A, the governing apparatus is streamlined, which helps to reduce expenses but strengthen the market foothold. In the banking sector, after M&A deals, the price of stocks and the prestige of two parties often rise remarkably.

In addition, capital scale, business and production capacity, competitiveness, and market shares also tend to improve, given the case of Kinh Do Corp and Nutifood.

However, in some cases, the acquirer aims at curtailing competition when it purchases another entity and the seller is at an advantage.

In this case, the buyer wants to put an end to a rival on the market. For instance, Unilever acquired the toothpaste trade name P/S owned by Phuong Dong Company at the price of US$5 million about 10 years ago. Initially, Phuong Dong seemed to make a bargain but many, including Phuong Dong, felt regretful.

In Vietnam, M&A is a new form of business activity although the country witnesses dozens of M&A deals each year. To make M&A an effective channel to attract foreign finance and help local enterprises restructure their operations and increase funds, the Government should have measures to manage these transactions effectively.

Tags: Vietnam M&A