Looking ahead to future M&A trends

How would you assess the characteristics of international mergers and acquisitions (M&As) in recent years?

Major deals between China and the United States in the past are giving way to activities between North America and Europe. Moreover, the M&A trend seems to be shifting towards Asia.

We can see that the 2018-2019 period marked a slowdown of US-China bilateral cooperation. One of the reasons causing this decline in M&A transactions between China and the US has been the boycott of American business by the Chinese. This led to American businesses looking towards the “Old Continent” of Europe to look for more lucrative deals with businesses that hold multiple patents or possess extensive know-how.

The number of M&A deals in Vietnam is showing signs of slowing. What factors are causing this?

Related activities in 2022 show that in the first 10 months there have only been 12 deals, with four related to tech firms. Other than that, most deals have been around gas projects, e-commerce, and logistics. The reason M&A deals in 2022 are showing signs of slowing down, especially in the later months of the year, stems from the current economic landscape.

With high inflation, rising interest rates, and the State Bank of Vietnam (SBV) selling off foreign currency reserves or executing deals that see offline merged with online, there is also a slump in liquidity compared to 2021.

The characteristic of domestic M&A deals still comes from the activities of equity investment funds, private equity funds, and the lack of quality buying investors coming from the European or North American markets. Major investment partners involved in M&A deals are mostly from Singapore, Japan, South Korea, and Thailand, even if the demand for M&A deals between regions and countries has shown steady signs of growth.

It is evident that companies with M&A needs are becoming more cautious when choosing partners, preferring safe, well-understood, and simple businesses that bring many added values - prioritising expansion of production activities and pursuing financial investment transactions with lower fees instead of the more traditional M&A deals that are expansion strategies on a global scale.

What factors in the domestic economy are affecting M&A activities in 2022, and how can prospects be raised for 2023?

The world’s central banks have been taking timely action to prevent inflation and limit the impact of fluctuating exchange rates. These agencies were forced to use tough measures such as raising interest rates or even intervening to buy back corporate and government bonds to stabilise the macroeconomy and reassure the investment community. Restoring confidence in the market to limit and avoid breakdowns, bankruptcies, or major shocks that can profoundly impact the economy is needed.

Contrary to the global situation, Vietnam carries the thin veil of a developing nation and could be considered as walking on a tightrope. The macroeconomy needs to be stabilised, and monetary policies need flexible adjustments whilst balancing with the movements coming from the world’s central banks.

The financial markets and stock markets are also seeing their share of difficulties, and the overall economy is vexed with challenges of its own; the VN-Index has constantly adjusted downwards since the start of the year, from around 1,500 to 950 points in the first trading sessions of November.

Another point to touch on is the crisis of confidence, with investors losing trust in stocks, and bonds, creating an invisible threat to the investor community, and spreading doubt regardless of the quality of the stocks and bonds offered.

The SBV is undergoing exchange rate adjustments, even if it has to trade off economic growth. Proposing a plan to net sell foreign currencies and attract more money back into the system. Some banks have raised their deposit interest rates to positively affect investor sentiment.

Faced with a red line, Vietnam’s economy and financial markets are forced to intervene to avoid a mass sell-off of stocks and bonds to collect money, which can create massive repercussions.

Many distressed businesses may declare bankruptcy, or those that cannot meet their repayment obligations to repay bank loans and interest on loans will find it difficult to recover from their current situation. These businesses are vulnerable to hostile takeovers, sold off cheaply, or auctioned off to investors, financial institutions, or the major players with influence on the market.

In the near future, which industries could see the most M&A transactions?

Personally, I see a multitude of distressed businesses that are liquidating valuable assets, as well as many businesses that may be subject to restructuring or acquisition, possibly within real estate, finance, fintech, e-commerce, and logistics.

Therefore, 2023 could bring various M&A deals within the financial sector, real estate, technology, sciences, consumer goods, and retail. Divestment of several state-owned enterprises as well as oil and gas enterprises could also prove to be attractive to institutional investors as well as international companies, with the latter being the focus of the market.

Cross-border merger and acquisition deals are being altered as a direct result of increasing inflation. Nevertheless, foreign investors are exploring untapped potential in the fintech industry to stay competitive in the digital era.

Digital assets have gained a lot of attention over retail investors, institutional investors, companies and policymakers in recent years. Despite the dramatic decline of the market, the potential growth for digital assets over the upcoming decade is expected to be high and reach tenths of trillions of US dollars market capitalisation according to prominent money managers like Fidelity and Ark Invest.