Vietnam’s M&As rebound amid valuation challenges, sluggish deal closures

[HO CHI MINH CITY] Deal-making volume in Vietnam has doubled this year, although the growth in value has been marginal.

Challenges in valuation and due diligence continue to delay deal closures, with observers saying that these tough conditions are likely to persist in 2025.

Data from Ho Chi Minh City-based deal advisory firm ASART showed that announced mergers and acquisitions (M&A) involving targets based in Vietnam over the first seven months of this year – excluding transactions among related parties – doubled from the same period the year before to 151 deals.

But total transacted value picked up only slightly to US$4.4 billion, from US$4.3 billion in the same period in 2023. 

Foreign direct investment (FDI) through M&As, which includes capital contributions and share purchases, fell by about 45 per cent year on year to only US$2.3 billion in the first seven months, according to data from the General Statistics Office of Vietnam and ASART. Its share of total FDI also fell significantly, dropping from 25.5 per cent last year to just 12.6 per cent this year.

Binh Le Vandekerckove, ASART’s founder and chief executive, said: “We have had a difficult year, and we anticipate M&A market to continue to be tough for the next 12 months. “You’re going to have to sit tight until the first half of 2025 if you want to really capture the market momentum.”

Since the Covid-19 pandemic, deal counts have fallen by over 70 per cent, from 346 in 2020 to 94 in 2023, going by ASART’s analysis.

Binh added that existing geopolitical tensions, global economic uncertainties and the significant policy interest rate gaps between Vietnam and the US have put pressure on the cost of equity, valuations and return on investment.

Valuation multiples in disclosed M&A transactions involving both public and private companies have shrunk in recent years.

ASART’s analysis showed that the overall valuation multiples are dropping, with disclosed average enterprise value-to-sales falling to 3x in 2023 from 3.3x in 2021; enterprise value-to-Ebitda ratios sank to 11.5x in 2023 from 16.5x in 2021.

Declining sales amid challenging economic conditions have led to prolonged discussions on business valuations, resulting in wider valuation gaps.

Binh noted that deal closures have been delayed, and more sophisticated deal structures have emerged to ensure adequate returns on investment and risk management.

Some of these complex financing instruments include deferred payments, earn-outs (payments contingent on future performance), and conservative post-closing adjustments.

Sectors of interest

The most sought-after target industries in Vietnam by disclosed volume and value in 2023 and the first seven months of 2024 include finance, energy and power, healthcare, industry, consumer and real estate, said ASART. 

One notable deal was the acquisition of Vietnam’s FV Hospital by Singapore-listed Thomson Medical Group for US$381.4 million this year – the biggest healthcare deal in Vietnam.

On the finance front, Sumitomo Mitsui Banking Corporation completed purchasing 15 per cent of the shares in Vietnam Prosperity Joint Stock Commercial Bank last October for US$1.5 billion, marking the largest M&A deal in Vietnam’s banking history.

Another recent major deal was Thailand’s Siam Commercial Bank’s acquisition of Vietnam’s consumer credit provider Home Credit Vietnam Finance for US$850 million; the deal is expected to be completed in the first half of 2025.

Sectors such as education, data centres and logistics are also increasingly piquing the interests of investors, who are betting on Vietnam’s growing middle class, expanding digital economy, and its rise as an ideal alternative production base for global manufacturers, industry insiders said.

Existing challenges

Seck Yee Chung, a partner who leads the M&A practices at Baker McKenzie Vietnam, stressed the need for more robust due diligence – from the commercial, legal and compliance perspectives – by foreign investors in the country.

In particular, various potential projects have faced uncertainties over land use duration and zoning. 

“(M&A activities) are really picking up, but everything takes a bit longer. There’s still a lot of drag,” he said. 

Seck also noted that foreign investors’ were concerned about political risks in Vietnam on the back of a string of leadership changes following the country’s ongoing anti-corruption drive.

Approvals for licences and determinations of land prices have taken more time, with government officials having become more cautious about making decisions. “The government has a laudable vision and has been working hard in this regard, with updates to policies and laws – but a lot more reform and practical implementation is still needed,” he added.

“Let’s not forget too, that our Asean neighbours and friends are doing the same thing – they are also putting in effort to attract foreign investment dollars,” he said.

By and large, while investors are awaiting the US Federal Reserve’s rate-cutting cycle to begin and for greater stability on the political front, there is optimism over Vietnam’s long-term investment outlook, underpinned by its strong economic growth prospects and balanced diplomatic relations with major powers.

Regional performance

South-east Asian countries underwent a 14 per cent decline in M&A value in the first seven months of this year, going by data compiled by the London Stock Exchange Group (LSEG).

In the first half of 2024, the region recorded 1,278 announced deals valued at over US$50.3 billion, with Japanese buyers being the most active in the market.

Deal value in the larger Asia-Pacific region – excluding deals involving Japan – took a similar downward trajectory. Total value of announced transactions in the first seven months fell 19 per cent from the year before to US$329.5 billion. This was the region’s lowest M&A tally in more than a decade, LSEG data showed.

These results, however, contrasted with the wider M&A recovery globally; there was a 16 per cent uptick over the same period, totalling US$1.77 trillion in deal value.