Can you give us a general overview of the current M&A landscape in Vietnam?

Interestingly, despite a severe business lockdown between May and November 2021, Vietnam saw a steady stream of smaller M&A activity. Some involved transactions in the pipeline and many of them simply continued. They revolved around existing business activities, renewable energy, fintech and industrial real estate. The moving party was normally foreign. The reason, we suppose, was that the downturn and the immediate problems it caused resulted in Vietnamese companies searching for foreign investors to increase their stake.

How has Covid-19 impacted M&A in Vietnam?

According to a report by the Corporate Investment and Mergers & Acquisitions Center (CMAC), in 2020 the value of M&A in Vietnam was estimated to have fallen by about 49% year-on-year to US$3.5 billion due to Covid-19. Most of the M&A activity that year was in the real estate, finance-banking, industry and retail sectors, and that was before the strong negative impact of Covid, so the lockdown may have been affected by financial factors or normal economic factors.

We are yet to see the updated report for 2021. Generally, however, new M&A activities in the south of Vietnam were almost frozen during mid-2021 due to the strict lockdown in Ho Chi Minh City and other nearby provinces and only now is M&A slowly recovering. It is expected that the M&A volume in 2021 will stay at about the 2020 level.

What are some trends emerging within M&A activities in Vietnam?

To the extent that one can perceive trends, renewable energy, education, fintech and industrial real estate all seem to have strong underlying demand or growth and additional capital requirements. Traditional sectors – residential real estate and retail – will continue. Besides the usual players from overseas, like private equity and growth funds, domestic corporations like Vingroup, Masan, etc. are seen to be more active.

Can you point out recent key legislation changes in Vietnam which have had an impact on M&A?

The Investment Law and the Enterprise Law took effect on January 1, 2021. 021 2. The Law on Securities (also in effect since January 1) is also relevant to M&A activities, but to a lesser extent. The new laws introduce a slightly different regulatory process for most M&A transactions, and their impact would appear to be minimal. However, in some sectors such as real estate, there will be more regulatory hurdles to overcome to acquire a project that is still in an early state.

What are some challenges for in-bound M&A into Vietnam? What are some opportunities for foreign investors?

Challenges: Vietnam’s legal framework is a continuing challenge as Vietnam doesn’t have a unified law for M&A. M&A activities are governed by various laws on enterprise, investment, competition, securities, etc. This issue is not new, but it has an impact.

Legal interpretation is also an issue as supplements and interpretations of the key laws (such as the Law on Enterprise, the Law on Investment) are more frequently made by the authorities. There can be variations in views among provinces and even among officials. A lack of consistency among administrative bodies is a normal challenge.

Opportunities: Through M&As, foreign investors can rapidly access the consumers, locations and distribution channels of existing local companies. M&A also provides a good alternative to bank financing. Also, numerous foreign investors are seeking opportunities in Vietnam and there are many success stories.

The policy on state-owned enterprise (SOE) equitization also brings opportunities to foreign investors, especially for those wanting to become a strategic shareholder of an equitized SOE through M&A. SOE equitization opens the door for foreign investors to enter certain business areas previously under controlled by the state, and to take advantage of an SOE’s resources which private enterprises do not possess. However, it is a long process and patience is important.

Are you seeing any recovery in M&A activity from Covid-19?

As banks exercise more caution with lending limits and as the willingness to take risks continues, companies will increase capital from both existing and new investors in a market which yields significant growth in many fields such as electric powered vehicles, fintech, logistics, etc. With an underperforming second half of 2020 and an extended weak performance in 2021, next year will see some recovery, probably as early as the end of the first quarter or early second quarter.

What is your forecast for M&A in Vietnam?

Vietnam will continue to be an attractive destination for M&A in Southeast Asia and is expected to recover quickly after the pandemic. M&A will both reflect and drive recovery. However, uncertainties and difficulties will remain across the economy.

Sesto E Vecchi
Managing Partner, Office Ho Chi Minh City

(84-28) 3824-3026
sevecchi@russinvecchi.com.vn

Brief bio Sesto has over 35 years experience practicing law in Vietnam. His expertise includes corporate, commercial law with particular emphasis on foreign investment. He acts for numerous multinational and mid-size investors, both foreign and Vietnamese. He has written and spoken extensively on Vietnamese legal issues.