The Vietnam M&A Market has been receiving more attention from investors for its captivating environment over the years. To stimulate investment in key economic industries, the Vietnamese government has simplified the M&A procedure and provided business incentives for both domestic and foreign investors. However, there are still challenges and obstacles that create difficulties for foreign investors in completing transactions.
This article highlights the advantages of external growth through a cross-border M&A and the importance of a local partner to help you at all stages of this operation.
1/ Why choosing M&A cross-border operations?
A- M&A operations allow the growth and development of the company
The main point of M&A operation is to increase the growth of the company. By doing so, the acquiring firm can increase its market share without starting from scratch. This allows the company to acquire another one that is already functional and established on a market. However, this strategy can meet different objectives than the simple economic growth:
- Portfolio diversification
A merger or acquisition is often motivated by a desire to diversify the markets targeted, the products or services offered, or the exposure to operational risks.
- Synergy
M&A deal can also serve to increase corporate profitability: by leveraging another company’s capabilities and combining business operations, companies can expect to increase efficiency and reduce overall expenses.
Synergy can also result in improving business performance, management talent, creativity, innovation capacity, R&D and market coverage due to complementary resources and skills and a wider range of opportunities.
- Increase distribution networks
Through vertical merger, a company can reduce its expenses by buying out one of its suppliers or distributors. As a result, the company can save on margins previously earned by the supplier.
- Market elimination
Many mergers and acquisitions allow the acquiring firm to eliminate potential rivals and increase its market share. Due to economies of scale, the profitability of the company is improved by the greater concentration or market share.
In general, the success of large acquisitions depends more on the industry in which they occur, while the success of small deals generally depends more on the strengths of the acquiring company.
B- Diversification via cross border M&A operations can give you a significant advantage
As the graph below shows, cross-border M&A transactions have been on the rise for the past ten years. With the exception of the Covid period, which led to a slight decrease in activity, this type of external growth is attracting more and more companies from all over the world. This dynamic may be the result of a combination of factors, including liberalisation of trade and investment regimes, deregulation of the services sector, privatisation of state-owned enterprises, and easing of controls on cross-border M&As.
2/ How to measure and minimize risks in M&A operations
A. Finding the good opportunity
Before any merger or acquisition is completed, transactors will face many obstacles. In addition to the complex nature of Vietnamese tax regimes, asset valuation poses a different problem in terms of seller and buyer expectations. Sellers often overestimate the value of their business, forcing the buyer to pay an inflated price without considering all the potential post-closing risks associated with an M&A transaction. In addition, investors may encounter difficulties related to management and accounting practices.
It is therefore essential to have a local expert by your side to advise on the real value. This is especially true for acquisitions: the target company is not obliged to reveal certain information to a buyer. The time required to verify legal and financial information can then rapidly increase, and slow down the deal. Beyond this simple verification, the acquiring company will also have to respect local legislation, which varies according to the business sector.
More generally, it is important that you have a solid plan that determines the right time, proactive deal sourcing, and opportunistic transaction analysis.
Acquirers must first clearly state why, for what purposes and where they expect to process M&A deal in order to achieve certain themes and goals underpinning their overarching corporate plans. It is important that business leaders perfom a market assessment but also a comprehensive self-evaluation to create a baseline from which to discover corporate ambition gaps, along with chances for M&A to close these gaps. On the other hand, the market assessment can be perceived as a great indicator that the company’s M&A strategy sticks with the actual trend, accounts for anticipated disruptions and takes into account competitors’ likely actions and reactions.
In addition, acquirers must also think carefully about how they will plan to implement the M&A. This strategy includes developing advanced business cases and integration plans for each area in which they intend to pursue an M&A. Within a specific M&A theme, the business case should detail how the acquiring company intends to deliver value to the target(s). It should also describe the operational adjustments and capabilities needed to integrate the new assets, such as the need for a new business unit or a new set of operating procedures to manage a new digital platform.
B. Transition Plan is essential to succeed in M&A operations
The key elements of the transaction actually take place during the post-merger integration, such as the blending of corporate cultures and the creation of synergies. These must be taken into account to avoid jeopardizing the success of the transaction and causing a loss of value for both parties.
The parties responsible for the integration of each merger are: Senior management and stakeholders, integration team members, HR, a change management office.
Here are some of our checklists for post-merger integration:
- Implement a well-defined plan for the handover on day one: Take immediate action to retain the finest employees and clients; prior to the first day, come up with solutions and backup plans for any problems; prepare clear regulations guidelines.
- Visible leadership: Ensure that the CEOs and other key leaders are involved and accessible to provide guidance and orientation from the first day.
- Communication is key
- Create motivation: ponder and consider how the new business will come across to stakeholders, the general public, and employees. This might encompass updating the values and guiding principles of the workplace or even creating and disseminating a mission statement for the organization.
3/ Final Thoughts
M&A deals are still considered a lucrative treat for businesses. M&A helps corporations with long-term ambitions. Due to its enticing environment of political stability, free trade agreements, low-cost based destination, developing technology, and accessible labor supply, investors have recently been paying closer attention to the Vietnam M&A Market.
However, there are still many difficulties and barriers that prevent international investors and acquirers from carrying out the transactions without difficulty. Therefore, being accompanied by the suitable partner is very important. With more than 20 years of experience in the Vietnamese market, Source of Asia accompanies you at all stages of your M&A strategy to bring you local knowledge, and help you minimize mistakes, save time and money.
