M&A to be exciting in 2011

The massive divestment plan of the State Capital Investment Corporation (SCIC) in 2011 and the development needs of businesses can be the basis for merger and acquisition (M&A) activities to continue bring excitement this year.

According to announcement of SCIC, in 2011, it would continue withdrawing funds in 281 out of 538 businesses in its portfolio. This is considered one of the large and potential sources of stake for M&A activities on stock market in 2011 to be animated.

Due to historical factor, most state-owned enterprises of state-owned corporations or People’s committee of cities or provinces, in which SCIC is the representative of State capital, though having potential resources or specific business advantages, are small in scale, weak in financial capacity, low in technology and management level, and in shortage of clear business strategy. They have less potential to develop in the fiercely competitive situation as at present.

Meanwhile, monitoring and managing too many small units have caused state-owned corporations certain difficulties and costly resources without achieving the desired efficiency.

According to Nhu Dinh Hoa, general director of BaoViet Securities Company (BVSC), such situation requires enterprises to restructure to improve operational efficiency. This is consistent with the increasingly popular trend for private enterprises and equitised state-owned enterprises of state-owned corporations. The trend is restructuring group of enterprises to form large businesses.

In fact, 2010 saw many business deals following that trend. Typically, Hoa Phat Group carried out restructuring and transfer of capital from a group of companies operating individually in different areas to a model with parent company and subsidiaries, becoming a large-scale and potential group with uniform administration and promoting the strengths of its subsidiaries. With such growth, Hoa Phat Group has joined stock market and raised trillions of dongs for development.

Many other enterprises have also achieved positive results when performing M&A through stock market, such as the merger of Ha Tien 1 and Ha Tien 2 Cement Joint Stock Companies under Vietnam Cement Industry Corporation; and the merger of Kinh Do Joint Stock Company, North Kinh Do Joint Stock Company and Kido Joint Stock Company.

Similar cases have been applied by enterprises in restructuring, improving capacity and increasing advantages when accessing capital on stock market.

However, in 2010, some SCIC’s state capital selling did not attract attention of investors. Explaining this, general director of Lien Viet Securities Joint Stock Company Hoang Xuan Quyen said it is not that investors did not want to buy shares; the problem is which price they would accept.

According to Quyen, since most enterprises that SCIC divests have potential and small scale, investors could easily think those are not good offers and are not willing to pay good price. Therefore, enterprises and consulting units must clarify whether such selling price is reasonable, and how the transparency in asset valuation and business advantage are. That is the barrier, which needs to be removed for the releasing and swapping plans to be in line with expectations of the parties, in order to receive supports from shareholders and attention from investors.

In addition, as many of such enterprises are in the locality, should the auctions be held locally so that enterprises could be easier in finding relevant investors?

Quyen analysed that in 2011, enterprises would continue paying attention to M&A trend. However, whether the proportion of successful M&A deals is high or not depends on many factors, such as quality of consulting process, transparency of enterprises, especially the ability to actively cooperate of the parties. – Dautu

Tags: Vietnam M&A