FTAs usher in fresh wave of foreign M&A potential

According to a newly-released report by financial in- formation supplier StoxPlus called “Vietnam M&A Mar- ket 2016”, industrial goods and services and textiles are both expected to boom this year, after the country has concluded various free trade agreements (FTAs) and integrated more deeply into the global market.

Vietnam concluded negotiations for four FTAs in 2015, with the Eurasian Eco- nomic Union, the European Union, South Korea, and the Trans-Pacific Partnership. These FTAs are forecast to boost capital flows into Viet- nam in the years to come, for both trading and investment as well as M&A activities.

The report found that many foreign investors plan to expand their business to Vietnam (particularly through M&As) in an attempt to take advantage of Vietnam’s various FTA deals. Some of the most notable movements come from South Korea, Japan, and Thailand.

Industrial goods and services, as well as textiles, will therefore likely witness a surge in M&A deals during the year. One such example is in the plastics sector, where M&A deals are expected to surge due to removed import tariffs for plastic products from Korea in line with the Vietnam-South Korea FTA, or VKFT.

As the VKFTA starts to take effect, import taxes on plastic materials from South Korea will decrease from 5 per cent to almost zero. Due to the lower import taxes and the cheap cost of labour in Vietnam, Korean firms can save millions of dollars by acquiring Vietnamese compa- nies and moving operations here, particularly considering imported plastic materials from South Korea added up to nearly $1.2 billion in 2015.

Given these business benefits, many Korean firms as well as other foreign investors are expected to look into acquiring Vietnamese enterprises at some point.

StoxPlus recorded 341 M&A deals in 2015, with a total value of $5.2 billion, a rise of 23.1 per cent in terms of numbers (compared to 277 deals in 2014), and 9.7 per cent in deal value (compared to $4.74 billion).

Breaking down the figures, the surge in M&A deals was attributed to an increase in transactions concerning small and medium-sized enterprises worth $5 million or under, which resulted in a lower average transaction size compared to deals made prior to 2015. Only 98 deals were inbound deals, but these contributed to nearly half of the total deal value (46 per cent). According to StoxPlus, real estate attracted the most interest from foreign investors, with 20 deals signed worth a total of $1.64 billion, or 69 per cent of the total value of M&As last year.

The most significant transactions included Gaw Capital Partners acquiring 50 per cent holdings at Empire City for $600 million, Chow Tai Fook buying 78 per cent of the Hoi An Project at $387 million, and Creed Group taking up 20 per cent of An Gia Investment stakes at $200 million