Gabor Szendroi has racked up quite a few miles flitting between Hungary and Vietnam, helping to connect companies in both countries through mergers or acquisitions. On one of his more recent assignments, he spent months advising a Hungarian company that wanted to buy a Vietnamese company, only to see the deal fall through. The Vietnamese company, he said, asked for too high a price.
“I think expectations here are a bit less realistic,” said Szendroi, a partner at IMAP MB Partners, a Budapest-based advisory firm for merger and acquisition (M&A) deals.
While in Ho Chi Minh City last week, Szendroi said these “extreme” expectations are one of several issues plaguing the burgeoning M&A trend in Vietnam. Vietnam’s government says it’s working to solve these problems in order to attract more foreign investors, like Szendroi and his clients.
Encouraging mergers or acquisitions is part of Vietnam’s broader strategy to fuel a disappointing economy that consistently posts growth below 6 percent annually.
Prime Minister Nguyen Tan Dung signed a directive Aug. 5 that lays out a five-year socioeconomic development plan. It said the country should strive for economic growth of 6.5 to 7 percent per year and create favorable business conditions, especially for foreign-invested enterprises.
For their part, public officials readily admit that they have their work cut out for them as they try to restore Vietnam to its former status as a popular investment in Asia’s emerging markets.
“Our country is coping with development challenges in many aspects, such as low efficiency and competitiveness, bottlenecks in the regulatory system, as well as poor infrastructure and human resources,” Nguyen Van Hieu, Deputy Minister of Planning and Investment, said in a speech Thursday at a forum on mergers and acquisitions.
These development challenges are seen as standing in the way of foreign investment. To convince foreigners to pour money into Vietnam, the government is starting with the sector it controls: state-owned enterprises.
Hanoi set a goal to privatize more than 400 state firms by the end of 2015. It hopes this process will make the firms more efficient and therefore attractive to foreign investors who might want to pursue mergers or acquisitions.
Investors say one way the government can reach its goal is by enforcing higher standards for the state companies’ business practices. Many of them prepare for privatization, for example, without professional advisers. Szendroi said advisers would help companies calculate a more realistic valuation, rather than the inflated prices Vietnamese businesses sometimes ask for when targeted by an acquiring company.
Another area that officials say they want to improve is transparency. Lawyer Yee Chung Seck said that if state-owned corporations and other businesses were scrutinized more closely, they would have healthier internal corporate cultures.
“If I walked around all day without a shirt on, I’d do a lot more push-ups,” said Seck, a partner at Baker & McKenzie, where he leads the mergers and acquisitions practice in Vietnam.
But because some companies in the country remain opaque, it is difficult for foreigners to find information about them when considering an investment.
“We need a central source of information run by government ministries,” said Vo Tan Hoang Van, CEO of Saigon Commercial Bank.
Van said the government should have “a contingency plan in terms of liquidity. That creates stability in the market.” Vietnam faced a liquidity crunch in 2012, when the arrest of Asia Commercial Bank’s co-founder triggered a bank run.
Banks are an especially sensitive investment. Vietnam protects the banking industry by allowing foreigners to own no more than 30 percent of a bank’s shares. Private investors say Vietnam may have to consider raising the limit because it is eager to sell off lenders that are dragging down the overall economy.
Policy makers are concerned about banks because of the high percentage of loans that have gone bad, a figure likely in the double digits and higher than official figures. To salvage some of these sick banks, Vietnam hopes to lure foreign investors during their reorganization.
“M&A is a solution, a very important one to restructure creditors and banking institutions in Vietnam,” said Bui Huy Tho, deputy director of the State Bank of Vietnam’s banking supervisory agency. He predicted more acquisitions coming down the pipeline and promised the central bank would help to ensure that “these deals will be carried out quickly.”
