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Is it time to promote M&A?

Is it time to promote M&A?

Wednesday 10, 06 2020
During the time of economic risks and crises, many enterprises are finding ways to narrow their operation due to countless difficulties, while others are spending a tremendous amount of money on M&A plans.

The M&A boom

84% is the growth of stock prices of the Kido Group in the last 5 months, reaching the peak of the period from August 2018 until now. The catalyst that has helped to sharply raise the KDC stock prices after 2 inactive years is the leaked consecutive merging information which is relevant to this group recently.

According to the documents of the General Meeting of Shareholders published on 25th May, the Kido Frozen Food Joint Stock Company has proposed the option of merging into KDC with an exchange rate of 1 KDF share for 1.3 KDC share. Two days later, the Tuong An Vegetable Oil Joint Stock Company also published its plan of merging with KDC in its documents of the General Meeting of Shareholders. The TAC stock prices also increased significantly in the second half of May.

The trading session at the end of May witnessed the stock prices of the Hoang Anh Gia Lai International Agriculture Joint Stock Company reached its peak despite being controlled. The information about the fact that the group of shareholders related to the Truong Hai Automobile Joint Stock Company continuously purchased the HNG stocks and increased their ownership rates has positively affected investors’ mentality.

On 19th May, Chairman of the Management Board of Thaco Tran Ba Duong purchased 3.88 million HNG stocks, raising his ownership from 4.23% to 4.58%. The holding company of Thaco, the Tran Oanh Production and Trade Limited Liability Company, chaired by Tran Ba Duong, also purchased 630,000 HNG stocks, increasing its ownership from 4.9% to 4.96% of the capital. Notably, Thaco bought 14.96 million shares, raising its HNG ownership rate to 27.63% of the capital. Accordingly, the group of shareholders related to Thaco has increased its ownership rate to 37.17% of the HNG capital, equivalent to 412 million shares. Recently, Thaco has also caught attention due to the acquisition of the Hung Vuong Joint Stock Company.

The General Meeting of Shareholders of the Saigon General Services Joint Stock Company (SVC) on 29th May also attracted attention as Former General Director of VNDirect Securities Company Nguyen Hoang Giang was introduced and elected a member of the Management Board by the group of shareholders with more than 36% of the SVC shares. The SVC prices have also rocketed by 61% in the last two months, as all major foreign shareholders have withdrawn their capital and been replaced by domestic investors. According to the PYN Elite Fund, one of the foreign shareholders of SVC, “an ownership competition at the enterprise has paved the way for this capital withdrawal”.

M&A is also frequently-mentioned in this year’s business plan of enterprises on the stock exchange. In the documents of the General Meetings of Shareholders of the Can Tho Agricultural Materials and Technical Joint Stock Company, there is a proposal for the F.I.T Group to increase their ownership to 80% of the voting shares in TSC. The story about how the Indo Tran Logistics and Transport Company (ITL) and Vietnam Electrical Equipment Joint Stock Corporation (GEX) race to increase the ownership ratio to acquire Southern Logistics Company (STG) is also quite amusing.

It is worth noting that even startups are interested in M&A plans in the current period, with the recent deal between Tiki and Sendo being the most evident. It is known that the deal can be completed right in July, making this joint venture become a very strong competitor in the e-commerce market in the race of "burning money" with Shopee and Lazada.

The strategy amidst crisis

Is it time to promote M&A?

According to analysts, the fact that enterprises are actively performing M&A at this difficult time can be considered risky yet wise. For companies that have already had connections and relevant ownership structure, the voluntary M&A aiming to cut costs is vital at the moment.

As in the case of Kido, the M&A is for the parent corporation to focus all its support and help affiliates to take full advantage of the parent's financial, management, and strategic advantages. In addition, the KDF deal also aims to attract investors who are interested in stocks when KDF, despite being listed at Upcom since 2017, has not generated attention and the stock price has not reflected the position of the enterprise.
Secondly, for businesses that are expanding their investments into new areas and industries, the acquisition strategy is always an option worth considering to reduce start-up time and costs, as they could take advantage of the supplies and markets of the acquired enterprises. The case of Thaco with HNG or HVG is a good example, as Thaco has established the THADI Agricultural Production, Processing, and Distribution Joint Stock Company in March 2019 and been continuously acquiring agricultural companies that have been struggling ever since.

Recently, Vinhomes Joint Stock Company (VHM – a real estate business belonging to Vingroup, has partly shifted its development orientation to the field of industrial park real estate, which is expected to benefit greatly from the trend of international capital flowing into Vietnam. Therefore, investors predict that there is a possibility that VHM will promote M&A strategy with companies operating in this field in order to capture the industrial parkland as quickly as possible.

Thirdly, apart from M&A businesses in other industries, the consolidation of companies in the same field can also increase market share, such as the case of Tiki and Sendo, two major competitors operating in the e-commerce industry. With Tiki having strengths in big cities like Hanoi and Ho Chi Minh City, while Sendo is more popular in suburban and rural areas, analysts say that if the deal is successful, it will help the two companies to quickly dominate the market and expand the customer base to take full advantage of the situation and to serve new development goals.

And finally, it is impossible not to mention the acquisitions to acquire businesses with attractive potential but the stock price does not reflect the value of the business. Big names like SVC or STG always have certain competitive advantages, which are always the target to attract big institutional investors.

It is noteworthy that while M&A among domestic enterprises to expand the scale and market share is always encouraged, hostile acquisitions can bring unpredictable consequences. In addition, M&A deals involving foreign factors have also been under the spotlight recently, as some analysts believe that the plunge of the stock market has become an opportunity for foreign investors to hunt for good “preys”. There have even been a number of proposals to prevent sensitive foreign acquisitions.

Statistics of the first five months of this year show that out of 3,528 times of capital contribution and share purchase by foreign investors with a total value of the capital contribution of nearly US $ 3 billion, there were up to 2,813 times of foreign investors purchasing domestic shares without increasing the charter capital with the value of 1.8 billion USD, accounting for 80% of the total number and 60% of the value. The capital contribution deals that do not increase the charter capital are mainly acquisitions or domestic businesses being forced to sell themselves to get out of the current predicament.


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