Vietnamese M&A proves resilient amid global economic adversity

One of Southeast Asia's most promising economies is becoming an increasingly compelling destination for deals

Vietnam's M&A market put in a strong performance in 2022, despite signs of the global economy fighting against a falling tide. Total deal volume for 2022 dropped by 19% year-on-year to 62 transactions (down from 77 in 2021), but this was still 11% above the total number of deals in 2020 and 2019, prior to the COVID-19 pandemic. Aggregate M&A value meanwhile amounted to US$4.7 billion, a decline from 2021’s figures of only 6% according to Mergermarket data. By comparison, global volumes and values were down by 5% and 34%, respectively.

The largest deal by value in 2022 by some distance was the announcement of Hong Kong-listed Swire Group's US$1 billion acquisition of Coca-Cola's bottling business in Vietnam, with a parallel purchase by the Swire Group for Coke's packaging and distribution operations in Cambodia. Swire is the fifth-largest Coca-Cola bottler in the world by volume and since 1965 has extended its exclusive rights to manufacture, market and distribute the soft drink to include 11 provinces in mainland China and the city of Shanghai, together with Taiwan and an additional 13 US states.

The consumer sector has been one of the most vibrant areas of Vietnam's rapidly growing economy, especially in terms of M&A deal value—all told, this sector accounted for US$1.4 billion worth of deals in 2022, putting it at the top of the table as regards deal activity in Vietnam by value despite a 13% year-on-year decline from 2021. Deal volume in the sector was relatively limited, with only six deals in the year (versus 13 in 2021) but still double 2020’s total and comparable with the eight deals struck in 2019. 

Unlike in much of the rest of the world, to date consumer prices have not been running rampant in Vietnam. The country's handling of the macro economic situation has won praise from the Asian Development Bank, which has said that price controls on petrol, electricity, food, healthcare and education mean that inflation was expected to be kept at 3.5% (on average) for the full year in 2022. Strong domestic retail sales and exports combined with accommodative but flexible monetary policy have put Vietnam on a solid footing.  

The country's annualized GDP growth was 8% in 2022, the highest rate since the late 1990s. This follows an impressive run over the past decade in per capita income—in 2010, this was US$1,297 but by 2021, this had risen to US$3,694 per capita. 

Exports have been buoyed by several comprehensive free trade agreements concluded in the past two years, helping to spur growth during the pandemic. These include the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) with Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru and Singapore; the EU-Vietnam FTA (EVFTA) with Europe, and the UK-Vietnam FTA (UKVFTA).

Brick by brick

The real estate sector saw high levels of deal activity in the first half of 2022. According to Mergermarket, it came in second to the consumer sector by value in 2022 reaching US$886 million—a fivefold surge on 2021’s total. It also claimed more deals than any other segment in 2022, with 11 transactions.

In January 2022, real estate logistics investment manager GLP and its Vietnamese affiliate SEA Logistic Properties launched a US$1.1 billion fund, GLP Vietnam Development Partners I. The fund, which received commitments from Dutch pension fund manager APG Asset Management and Canada’s Manulife, was established with a seed portfolio of six development sites with land area totaling nearly 900,000 square meters.

As regards M&A investments that completed during the course of 2022, the two largest real estate deals involved investments into Novaland by its existing majority shareholder NovaGroup and by Warburg Pincus. The Asia-focused real estate services and investment company, ESR, took a strategic equity stake in logistics and industrial developer BW Industrial Development Joint Stock Company as part of a US$450 million capital raise. BW has more than 8 million square meters of real estate in operation and under development in Greater Hanoi and Ho Chi Minh City, making it the country's largest land bank.

Despite its huge potential, the real estate sector in Vietnam faced challenges toward the end of 2022 due to global macroeconomic headwinds and ongoing investigations into certain property developers—at this stage, these headwinds are expected to continue in 2023.

Localizing data 

A recent update to Vietnam's data laws may also serve as a catalyst for M&A. As of October 1, 2022, all domestic companies and certain foreign businesses providing services such as telecommunications, e-commerce, and online payments must store data, including any credit card information, email addresses, recent logins and phone numbers onshore for a minimum of 24 months.

The new legislation is expected to elicit further interest in data center projects. The broader digital infrastructure space in the Asia-Pacific region already witnessed a surge of M&A in 2022, including the ESR takeover of the logistics real estate platform ARA Asset Management to support its data center rollout across the Asia Pacific region.

In addition, in April 2022, state-run telecom company Viettel announced plans to develop Vietnam’s largest data center, while Australia's Edge Centres launched its first data center in December 2022 and Singapore's Data Center First reportedly plans to enter the Vietnamese market. The country's 18 free trade zones and more than 350 state-supported industrial parks, which offer attractive tax incentives, will make for fertile ground for operators to establish these operations.

The stars are aligning in Vietnam. Global growth may be slowing, and this will undoubtedly dampen the country's impressive export momentum to some degree in 2023. However, its dynamism and expert handling of current macro pressures make it better positioned than many other countries meaning its M&A markets may repeat last year's remarkably resilient performance.

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