The year 2021 witnessed impressive figures in the merger and acquisition (M&A) market in Vietnam. According to the Ministry of Construction, Vietnam’s real estate industry received more than 31 billion USD of registered foreign investment capital. In particular, the disbursed capital in 2021 was 2.6 billion USD, decreasing by 1.6 billion USD compared to 2020. This shows that there are still many projects that have not yet met the legal requirements for disbursement, partly due to social distancing measures during the pandemic.
However, the decision to open all flight routes from March 15 as well as the visa-free entry policy is expected to accelerate the negotiation process of M&A deals and enhance real estate investment activities. When tourism barriers are removed, investors can directly conduct market research, learn business models or assess the potential of the industry.
Therefore, the process of disbursing foreign direct investment (FDI) capital will become more convenient, contributing to increasing the success rate of M&A deals.
Vietnam's real estate industry is facing the opportunity to create momentum for M&A activities and become an attractive destination for international businesses in 2022.
According to experts of Savills, Vietnam possesses many macro factors, helping to create an attractive environment for foreign individuals and organizations to participate in investment activities. In addition, the Government's plans to support businesses and control the epidemic have stabilized the economic situation and ensured social security. These are said to be two factors that build the confidence of FDI enterprises to pour investment capital into Vietnam.
Ms. Le Thi Phuong Lan, Head of Investment Advisory Department, Savills Hanoi, shared: “In the first months of 2022, Vietnam recorded positive results in M&A activities. In particular, the real estate sector ranked second when it received a total registered investment capital of nearly 1.52 billion USD, accounting for 30.4% of the market share. These figures have partly confirmed the needs and expectations of foreign businesses in developing real estate projects in Vietnam.”
However, in exchange for the opportunities and potentials that Vietnam brings, M&A activities in Vietnam still have certain limitations. This makes FDI enterprises become more cautious, somewhat inhibiting the development of the M&A market.
First of all, the legal system on land in Vietnam is still relatively complicated. According to Ms. Lan, many provisions in the laws, such as the Law on Housing, the Law on Land and the Law on Real Estate Business, are overlapping. This causes several problems that cannot be solved.
Despite the Government's institutional reform over the years, these shortcomings will be a factor hindering the development of M&A deals.
In terms of transaction structure, most foreign-invested enterprises want to deploy a joint venture structure. Under this model, they hold the main decision-making power and Vietnamese investors have to provide legal support for the project.
However, due to the difference in business practices as well as the legal system, the negotiation between the two parties becomes time-consuming, and sometimes leads to conflicts in the post-M&A stage.
In addition, because the M&A market is a relatively new concept in Vietnam, many businesses, especially small and medium-sized enterprises, have not been well prepared for this process. For those who own large projects, they have not yet specifically planned for a reasonable divergence right from the project planning stage, leading to many difficulties in mobilizing investment capital or transferring capital.
Finally, buyers and sellers are taking different pricing approaches, creating differences in the expected price of the project. This leads to difficulties in negotiating to find a suitable price between the two parties.
Ms. Lan added: “The M&A market in Vietnam possesses many advantages compared to other countries in the region, but still has many potential challenges for foreign investors. M&A deals are a complex commodity. Therefore, the parties involved need to carefully study as well as make detailed plans to aim for long-term value in the future.”
According to this expert, although the real estate market possesses many incentives to attract foreign investment capital, limitations in the legal system as well as the way businesses approach M&A will hinder the success of M&A deals.
Compiled by VietnamCredit