M&A can prosper with the right steps

The mergers and acquisitions market is poised to bounce back in 2024 after a fluctuating period, with significant anticipated deals across various industries. Le Khanh Lam, partner at RSM Vietnam, explains why Vietnam must take decisive action to converge the necessary conditions and be fully prepared for the upcoming growth period.

Globally, the total transaction value in the merger and acquisition (M&A) market for 2023 experienced a state of stagnation. This is mainly due to the political and macroeconomic uncertainties investors face worldwide. The increasing global inflation, as well as the geopolitical and economic instabilities found across the globe, has impacted investor views, leading them to become more cautious.

Based on several reputable surveys, global M&A activities in 2023 are experiencing unfavourable conditions. One of the main reasons for this is the continuous interest rate hikes by the United States Federal Reserve, which has led to increased financial costs and decreased asset prices. The tightening of monetary policies has also impacted emerging markets, making transactions more costly and negatively affecting the quality and quantity of deals.

In particular, the disruptions caused by the war between Russia and Ukraine and the ongoing conflict between Israel and Hamas harm the global political-economic situation in general and the M&A market. As Vietnam is in the process of integration, it is inevitably affected by these developments.

Although Vietnam’s M&A market has faced some challenges, experts are optimistic about its future. The market is expected to recover in 2024 due to stabilised macroeconomic conditions, increased investor confidence, and the government’s commitment to infrastructure development and economic reforms.

Implementing these measures is expected to significantly contribute to the quick and sustainable recovery of the economy, not only in 2024, but in the upcoming years as well. As the economy bounces back, consumer confidence will improve, business growth will become more apparent, and foreign investment will increase, leading to the revival of M&A transactions.

Investors are expected to pursue businesses with stable and long-term investment strategies, focusing on sectors like agriculture, food, and the medical industry, including hospitals, pharmaceuticals, and medical equipment. Additionally, investors may look for opportunities in sectors that offer attractive valuations during market downturns, such as real estate and construction. The changing regional dynamics are influencing the interest in industrial production and logistics.

Key sectors expected to thrive in 2024 include green energy, technology, real estate, and healthcare. The growth of infrastructure and technology, driven by digital transformation, propels investment trends in these industries. Real estate, in particular, is anticipated to have significant potential for M&A activity, with financial institutions showing interest in short-term or long-term investment opportunities in search of high returns.

Suggestions for activities

Vietnam must make significant breakthroughs in some key areas to attract more investors.

Firstly, we should improve its policies and mechanisms to stimulate mergers and acquisitions. The government must find ways to consider expanding the market and providing support policies to domestic firms in capital mobilisation on foreign securities markets.

Vietnam also needs to increase the quantity and quality of supply to meet investors’ needs. Equitising large state-owned enterprises, divesting from government-listed corporations, and encouraging private companies to invest can be critical notes in this process.

Besides that, Vietnam needs to forecast the number of foreign capital inflows in the future, identify where investors are coming from, their interests, and whether local opportunities are sufficiently attractive.

For Vietnamese businesses, consulting with experienced professionals, including legal and financial advisors, is crucial for a successful M&A process.

There are some general steps that companies should focus on to enhance the success of M&A activities. Companies should ensure that the merger or acquisition aligns with the overall strategic goals of both organisations. Clearly defining the purpose and objectives behind the merger or acquisition and conducting thorough due diligence to assess the target company’s financial, operational, cultural, and legal plays an essential role in the process.

Incompatible cultures can lead to integration challenges. Businesses should develop a plan to address cultural differences and foster a positive working environment, and an integration plan outlining the steps to take after the merger or acquisition. Establishing a dedicated integration team with clear roles and responsibilities can help the process run smoothly.

Compliance and flexibility

Businesses should find legal advice and identify potential synergies regarding cost savings, increased market share, and improved capabilities.

They must also create detailed financial models to assess the impact of the merger or acquisition on the combined entity and consider various scenarios to understand potential outcomes.

Furthermore, businesses should develop a risk mitigation strategy to address potential challenges during the integration process and consider implementing risk-sharing mechanisms in the deal structure.

One of the final steps to acquiring M&A activities is conducting regular evaluations to identify areas for improvement and optimisation. The needed activities include being flexible and adaptive to changes in the market, business environment, or internal dynamics and adjusting the integration plan as necessary to address unforeseen changes.

Before pursuing any M&A activities, Vietnamese companies should conduct thorough market research, financial due diligence, and legal assessments. Collaboration with financial advisors, legal experts, and industry specialists is essential for a successful strategy.

Additionally, companies should consider cultural and regulatory factors that may impact the integration process.