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After having experienced a shrink in M&A deals in 2023 due to the worldwide geopolitical instability and economic slowdown, official predictions expect Vietnam to improve in 2024.

I. Outlook of the M&A market in Vietnam

At the end of October 2023, the total number of M&A deals fell by 16.8% compared to the same period last year, according to the Ministry of Planning & Investment. However, due to the political stability in the country and the expanding domestic consumer market, Vietnam is widely seen as an enticing market. It has become particularly appealing to foreign investors due to the resurgence of exports and manufacturing industries, coupled with the government’s public investment program that is driving economic growth. American investors for instance see it as the global supply chains core, including the semiconductor supply chain.

In contrast to the last three years, where domestic investors dominated Vietnam’s M&A market, foreign investors secured the top five positions in terms of deal value in the initial 10 months of 2023; Japan, Singapore, and the US maintain their status as some of the most engaged foreign investors. They collectively constituted over 70% of the overall reported deal value.

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“63% of surveyed businesses positioned Vietnam within their top 10 FDI destinations according to EuroCham.”

M&A deals 2023

II. Key points about the M&A sector in Vietnam

Promising sectors in M&A

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Despite restructurings and funding challenges within technology firms, M&A leaders observe strong activity in this sector. Japanese transactions related to technology dominated in the first half of the year, accounting for about 40% of total transaction value (ASL Law Firm). In addition, green technology continues to showcase promising developments across Europe.

Healthcare & Pharmaceuticals

Healthcare remains one of the most active industries in 2023 with US$ 434 million in total disclosed value surpassing 2022 and 2021, mostly powered by the biggest-ever FV Hospital deal, over US$380 million. As Vietnamese pharmaceuticals companies include advantages such as cheap labor and low production costs, they have been popular among foreign investors. Plus, the government aims for the country to be a leading pharmaceutical production center, with a target of $1B in exports in 2030 (Vietnam Briefing).

Energy & Infrastructure

Vietnam’s aggressive transition towards renewable energy, including decentralization of power generation, expanding infrastructure developments and increasing energy demand to meet its economic growth will likely create a thriving M&A market in the coming years. With Vietnam committing to Net Zero emissions by 2050, renewable energy is assured to be active M&A sector, driven by growing investor interest in ESG factors. Moreover, the Power Development Plan VIII underscores investment potential in renewable energy, electricity grid development, and electric vehicles (KPMG).

Financial services

With Vietnam’s stable economy, its dynamic business community and a growing consumer base, financial services have been appealing to foreign investors: two major annual deals in this sector have, again, involved Japanese investors. One includes SMBC bank, that invested US$1.5B in VPBank, marking the largest M&A deal in Vietnam’s banking history and positioning VPBank as the second-largest bank by equity in the national financial landscape, after Vietcombank (KPMG).

III. Legal Challenges in Vietnam

a) For foreign investors

To close deals in Vietnam , foreign investors must go through long regulatory procedures. They are first required to obtain a M&A approval to acquire shares in specific private companies. Depending on the type of acquisition, they will also need the notification of economic concentration, allowing them to acquire entities with a value of VND 1 trillion. Furthermore, the Vietnamese legal system lacks some concepts, including for instance tag-along/ drag-along rights, that international businesses are familiar with and which might create some uncertainty from foreigners’ side.

Another challenge to overcome is Vietnam’s flexibility to hand over the profits to investors, as painstaking conditions burden foreigners’ repatriation funds out of Vietnam. It is important for companies to be aware of these challenges, but they must bear in mind that the Vietnamese legal M&A landscape is experiencing some positive evolution and is expected to become more foreigner friendly in the near future.

b) Legal risks

Legal issues can be pointed out despite Vietnam’s robust economic growth, obstructing foreign investments in the country. A first matter is the indirect transfer of equities, which involves regulations aiming at preventing the avoidance of capital gains tax by addressing the transfer of shares in a Vietnamese company through the sale of an offshore entity holding those shares. Consequently, Vietnamese tax authorities take a strict control with legal actions in order to avoid loss of tax revenue.

Secondly, the enforcement of arbitral awards is perceived as a risk, as in the case of Vietnam, the foreign arbitral award must be submitted to the competent Vietnamese court for recognition. However, as the courts may decline the enforcement for formalities, it can be unpredictable and unfavourable for foreigners.

And thirdly, the anti-trust regulations, as outlined in the Competition Law of 2018, are currently undergoing a developmental phase and are subject to a comprehensive review process comprising two phases: preliminary appraisal and official appraisal. The Law on Competition mandates that certain M&A transactions must be notified to the Vietnam Competition Authority (VCA) if they meet certain thresholds. The purpose is to assess whether the proposed transactions could result in a substantial lessening of competition in the relevant market. Failure to notify the VCA when required can result in penalties, like fines and orders to unwrap the transaction.

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Final thoughts

In a nutshell, foreign parties should be aware and conduct thorough due diligence, seek legal advice and understand the local M&A environment in Vietnam. Having strategies to address the challenges is a must to succeed with your M&A transactions in Vietnam. After experiencing a light slowdown in M&A activity in 2023 especially on domestic deals, Vietnam is anticipated to glance and showcase promising growth in 2024.

Nowadays, the trend focuses more and more on the Environmental, Social and Governance (ESG) factors; “5 out of 2 deals have ESG requirements”. Therefore, companies should pay attention to this component for their future deals: according to the Deutsche Bank, they’ll be considered in 95% of investment decisions by 2035.