M&A market will recover

Figures from the Ministry of Planning and Investment show that Vietnam attracted nearly $27.3 billion in FDI in the first ten months of 2024, up 1.9 per cent year-on-year, while disbursing some $19.6 billion, an 8.8 per cent increase. However, the country’s merger and acquisition (M&A) landscape unexpectedly cooled in October and, hence, the ten-month period, with 2,669 foreign-investor equity contributions and share purchases totaling over $3.68 billion in capital, down 10.4 per cent and 29 per cent, respectively, year-on-year.

At the 16th M&A Vietnam Forum 2024, with the theme “A Blossoming Market”, held on November 27 in Ho Chi Minh City, Deputy Minister of Planning and Investment Nguyen Duc Tam explained that this temporary dip reflects global trends, with the world economy still recovering from the pandemic and geopolitical uncertainties. “Despite these challenges, Vietnam’s M&A market remains a safe and attractive investment destination with major potential,” he told the forum. “The market will recover shortly, and M&A activity will thrive again. Investors will return, and deals will flourish once more.”

Bright spot in Southeast Asia

According to data from Dealogic, global M&A deals announced as of September 25 totaled $846.8 billion, marking a 14 per cent increase compared to the same period last year. Notably, the value of M&A transactions in the Asia-Pacific region surged 54 per cent, reaching $273 billion, driven by several high-value deals.

However, despite this global growth, the volume and value of M&A deals in Southeast Asia have been relatively subdued. Even though interest rates have been lowered and policies aimed at boosting economic growth have been implemented, the region continues to feel the impact of global and regional challenges. Investors and businesses remain cautious, limiting their engagement in M&A activities.

Dr. Nguyen Cong Ai, Office Senior Partner (Ho Chi Minh City), Deal Advisory, Strategy at KPMG in Vietnam, pointed out that the domestic M&A market has followed the global decline this year. While transactions remain cautious due to both local and global challenges, the underlying factors for long-term growth are still present in Vietnam. Beyond the traditional investment sectors of real estate, consumer goods, and industry, new and attractive sectors such as information technology, other technology, and finance have also begun to emerge.

According to KPMG, Vietnam’s M&A market in the first nine months of 2024 stood at $3.2 billion in total deal value, up 45.9 per cent compared to the same period of 2023 and in contrast to an 11.3 per cent fall in transaction value in Thailand, Indonesia, Malaysia, Singapore, and the Philippines. The market recorded over 220 deals, down 11.6 per cent from last year. The average deal size was $56.3 million, with the largest deal valued at $982 million. Real estate, essential consumer goods, and industry accounted for 88 per cent of total transaction value.

Another encouraging sign is the rise of Vietnamese companies in the M&A space. Among the top five countries with the largest deal values, Vietnam recorded $1.707 billion, far outpacing Singapore ($611 million), the US ($256 million), South Korea ($93 million), and China ($75 million).

Domestic investors took the lead in Vietnam’s M&A market in the first nine months, representing 53 per cent of total deal value, or almost double the combined contribution of the top 4 foreign investors, according to KPMG’s report. This shift is a result of the restructuring efforts of domestic businesses, and also indicates that foreign investors are becoming somewhat more cautious in their approach to the country’s M&A market.

Foreign investors have been the primary drivers of Vietnam’s M&A market for the past decade. In 2024, however, the trend shifted, with domestic players now taking charge of key deals. “With the M&A market continuing to accumulate energy this year, we can expect a significant surge in activity in 2025,” Mr. Ai believes.

Future outlook

While there is optimism surrounding M&A investments in Vietnam, it is crucial to maintain a realistic perspective as the future remains uncertain. Mr. Seck Yee Chung, Partner at Baker McKenzie, said the Vietnamese Government is navigating geopolitical challenges and decisively tackling corruption, which build trust. “The focus on innovation indicates Vietnam’s goal to rise within the global value chain,” he added.

Vietnam’s young, skilled workforce and expanding middle class present significant opportunities, though challenges persist. Policy uncertainties, especially from global shifts like the new Trump administration in the US, and complex approval processes for foreign investors, are ongoing concerns. Despite these, there is cautious optimism about the future, according to Mr. Seck.

Ms. Vo Ha Duyen, Chair of the Vietnam International Law Firm (VILAF), noted that Vietnam is undergoing dynamic legal reforms that are impacting business operations, investment processes, taxes, and industry-specific regulations. Many proposed changes aim to simplify procedures and reduce burdens on investors, especially in technology, green energy, and environmental, social, and governance (ESG) sectors.

One key reform is in the Law on Telecommunications, becoming more investor-friendly and offering foreign ownership in services like telecommunications, cloud computing, and apps such as WhatsApp and WeChat. Fewer regulatory requirements are expected to boost foreign investment.

Additionally, under the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), Vietnam removed foreign ownership limits on electronic gaming and retail sectors. Foreign investors can now own 100 per cent of gaming companies, up from 51 per cent. The removal of economic tests for CPTPP countries further streamlines investments.

In the energy sector, Vietnam’s newly-introduced direct power purchase agreement (DPPA) mechanism promises growth, especially in renewable energy, though full implementation still awaits additional guidelines from the Ministry of Industry and Trade and EVN (Electricity of Vietnam).

Barriers to deal execution

Mr. Dominic Scriven, Chairman of Dragon Capital Vietnam, identified three major challenges in the M&A market: the business environment, supply constraints, and the dynamics between buyers and sellers.

First, trust between buyers and sellers is the foundation of any deal, but currently, the market’s trust is fragile. This year alone, $3.5 billion has been pulled from Vietnam, adding to a total of $6 billion over the past three years. This reflects a lack of confidence in the market.

Second, the structure of Vietnam’s capital market remains outdated, with the banking sector dominating, followed by real estate, energy, and consumer goods. While sectors like education and telecommunications are growing, technology and e-commerce remain underdeveloped.

Third, the relationship between buyers and sellers is hindered by policy issues. While initiatives like Circular No. 68/2024 from the Ministry of Finance aim to attract foreign capital, they have not yet provided a clear message to investors. Domestically, there is a lack of strong investment structures.

To boost competitiveness, Mr. Oh Hsiu-Hau, Managing Partner at Allen & Gledhill (Vietnam), suggested that Vietnam focus on sectors benefitting from policy improvements, especially real estate. Positive changes in the Land Law and macro-economic policies will address investment concerns and reduce speculation. The energy sector is also seeing increased interest, with new regulations encouraging energy transition projects. Healthcare is another sector gaining attention, with new guidelines easing restrictions on medical services. Though some legal areas still need clarification, ongoing reforms signal Vietnam’s commitment to improving FDI attraction.

Clearer competition regulations, especially around foreign transactions, will also build trust and stimulate more foreign investment.