Published On: Thu, May 27th, 2010

Corporate M&As not easy to succeed

Before M&A Forum Vietnam 2010 was held in HCM City yesterday, Kinh Do Food Joint Stock Co had boiled the market by its announcements of buying back a series of companies.

M&As are not too strange a thing for Vietnamese economy but it is not easy for corporates to earn profit from the operations.

Andy Ho, investment director of VinaCapital while raising a question said, “50 percent of buyback deals are not successful. Why’s that?” The buyers will take over market share, customer network, distribution channel, production and technical skills, and manpower of the selling parties. So M&A is considered to be the vital process for the development of enterprises particularly and the economy generally, according his own answer.

Nguyen Ngoc Su, deputy general director of PetroVietnam said that the group’s M&As are embedded with its restructure process. In future, PetroVietnam will withdraw its contributed capital from some service business companies that do not support much for PetroVietnam’s major business fields, and reduce the holding ratio in finance and insurance.

M&A operation for PetroVietnam contains a lose ratio of 50 percent but that for other enterprises is 50 percent of win with new development opportunities. Factually, a lot of firms were too hasty in carrying out M&As but then they did not see any effectiveness. Even some M&As had to be cancelled after the global economic recession. And M&A experts used to sell a part or entire capital in these partner companies.

Andy Ho added that a large number of 300 FIEs in Vietnam demand to withdraw capital in next years, which will help Vietnam’s M&A market become more exciting. M&A operations will surge in fields of retailing, fast consumer goods, finance service, entertainment and communication, he predicted.

In 2007, the world recorded 17,000 M&A deals worth nearly $6 trillion. But in 2010, the operations generally slowed down. According to Dr Christopher Kummer, director at Institute of Mergers, Acquisitions and Alliances (IMAA), developing countries of Asia could witness over 2,500 M&A deals amounting to over $100 billion in 2010, higher than 2009 in terms of both deal number and value. The sectors leading in term of M&A operations will be finance (20 percent), telecom and material production (15 percent), energy and fuel (13 percent), industry 9 percent and high technology 8 percent.

Tran Dac Sinh-general director of Hochiminh Stock Exchange (STC) reported that from 2000 to 2009 the number of listed firms on STC surged from two to over 230 with total market capitalisation from 0.28 percent to 38 percent of GDP (equalling to 620 trillion dong). But the M&A operations of listed firms remained limited in terms of number and value while high valued deals took place outside the listing market.

M&As of Vietnam mainly are conducted under the consultancy of securities brokerages, which are not requested to consult about development strategy and corporate restructure after the merger and acquisition.

Corporate equitisation at Vietnam occurs slowly, so M&A operation via the stock market must be a channel to open capital attraction opportunities from domestic and foreign investors.