Potential remains in regional M&A

The CLMV (Cambodia, Laos, Myanmar and Vietnam) group represents nascent potential merger and acquisition (M&A) opportunities in the region, with frontier Vietnam serving as a gateway into the group as it seeks an upgrade to emerging market status, according to Merrill Corporation.

M&As in Vietnam from 2011 to the third quarter of 2016 saw 187 deals worth $14.075 billion, according to Merrill Corporation, a leading technology-enabled platform for secure content sharing, regulated communications, and disclosure services.

The company has teamed up with Mergermarket to discover the momentum of M&A in Southeast Asia in its newsletter “Southeast Asia M&A: Trends Shaping the Region”.

Cheaper labor and lower setup and operational costs for manufacturing bases in the countries are garnering interest from foreign investors as China shifts away from low-end manufacturing and moves up the value chain. Vietnam has been making progress in opening its doors to foreign investment, enacting a law in July to reduce the processing time for the acquisition of an investment license by roughly two-thirds, to 15 days.

“In frontier Vietnam, legacy standards for accounting are not up to par with the international financial reporting standards (IFRS),” said Ms. Srividya Gopalakrishnan, Managing Director of Duff & Phelps, a global financial services firm with expertise in complex valuation, corporate finance, disputes and investigations, and compliance and regulatory consulting. “The country also exacts a high cost of debt and poses significant business disruption risks with the frequent occurrence of labor strikes.”

In the region’s M&A market, deal volumes have remained generally steady since 2011, with a small spike in 2014. Meanwhile, the region’s deal values have reflected a downward trajectory since 2013.

2015 saw a 13 per cent decrease in deal volume and a 14 per cent decrease in value from 2014, posting 388 deals worth $47.6 billion. 2016 looks on track for a comparable finish in value, with the first quarter to the third quarter of 2016 already seeing $43.8 billion from 281 deals.

This subdued deal activity is due largely to neighboring China’s continued deceleration in growth, giving rise to knock-on effects on the region’s economies heavily reliant on Chinese demand. With falling demand, Southeast Asian companies that previously leveraged up to cater to China’s heyday of double digit growth now find themselves in overcapacity, with some on the brink of default and distress.

Going into 2017, Southeast Asia may see renewed interest from North American and European investors as the dust begins to settle after the US presidential election, and as Brexit negotiations begin to take clearer form. Tighter economic cooperation is likely to transpire, both within Southeast Asia and the rest of Asia.

Sectors in distress or undergoing consolidation may give rise to a spate of distressed debt and special situation opportunities, though the region is not likely to be held back in its pursuit of growth. Following the lead of its most advanced economies, the region is ready to tide itself through leaner times through forward-looking innovation.

Vietnam Economic Times

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