With the effects of Covid-19 moving towards long lasting, it is important to take a look at the health of certain parts of the global economy. One major aspect of that picture is the M&A deal flow. As a firm who is centered in the growing technological sector in Vietnam, Indochine Counsel is particularly interested in the movement of deals therein. As such, it was a pleasure to be provided some information about tech M&A globally during the last nine months. This post will review some of that data and what it means for Vietnam’s future. Unfortunately, the data available globally is not mirrored in Vietnam. This article, therefore, will focus on tech M&A globally so far this year with a look at M&A generally in Vietnam with a look at some relevant deals.
Tech M&A Globally in 2020
Tech M&A remained stable in the first quarter of 2020. It wasn’t until Q2 that the markets truly began to see the impact of Covid and reacted negatively. Q2 saw a nearly 60% quarter-on-quarter decline in deal flow to become the lowest level of activity of tech M&A globally in over a decade. In Q1 there were US$87 billion in overall deal value compared to Q2’s US$35 billion. It was the most dismal performance in tech M&A since 2009 during the great financial crisis of last decade.
Quarter 3, however, showed a huge amount of resilience despite signs that Covid-19 will continue to mark a major impact on the global economy. Q3 saw the highest quarterly volume of deals in over two decades. A rebound that, compared to the six years required to recover from the last financial crisis, marked by a huge number of deals. Over 1,000 large deals were logged for a value of US$205 billion. In one quarter, then, tech M&A globally more than recovered, it bounced to levels higher than its seen since Clinton was president of the United States.
(Statistics in this section were provided courtesy of Menalto Advisors, LLC www.menaltoadvisors.com.)
M&A in Vietnam in 2020
As I mentioned above, the statistics for Vietnam are slower in coming and don’t have the specificity of sector that global numbers make available. The General Statistics Office does not make numbers of M&A available during the year, it seems, only numbers for FDI.
In H1 M&A in Vietnam was down year-on-year by 56.8%. The total deal value for all M&A conducted in Vietnam in the first half of 2020 was US$3.5 billion. There were 4,125 instances of capital contribution recorded (a number which suggests that average deal size is small). This was enough, however, to mark Vietnam as most attractive M&A market, after the USA, in the world.
Several large deals in the financial sector have driven volume this year in Vietnam. Also seeing action are healthcare and insurance sectors. Some argue that growth in these sectors comes as a result of investors looking to diversify their portfolios into markets that have little downside from Covid-19. Vietnam surely fits that mold.
(Statistics for this section come from Vietnam Investment Review’s June article on M&A in the country: https://www.vir.com.vn/ma-set-for-a-bustling-second-half-77568.html.)
Consequences for Vietnam
M&A in the tech sector globally has seen a huge increase in deals since the world came to grips with Covid-19. Rising nearly six-fold in one quarter, the deal flow has shown a great deal of resilience and presages a trend of tech deals. With Vietnam and ASEAN showing themselves attractive to investment opportunities in general, and in tech particularly, the future is bright for the region as far as potential deals are concerned. Vietnam will especially benefit as it has taken steps to deregulate certain aspects of investment with the new Securities Law and the new Investment Law.
Tech M&A, in particular, is a growth industry. Vietnam’s government is actively courting the tech industry. Through recent deals with Japanese companies to develop R&D labs in the country and increasing tech manufacturing Vietnam is becoming an attractive market for international tech giants to invest. Smaller scale actions, too, bear examination. A recent initiative will endeavor to bring existing Fintech experiments that have outpaced legislation into legal recognition by a continuing workshop between entrepreneurs and legislators. Other efforts are aimed at luring in startup entrepreneurs as well as the investors to fund them. And with Vietnam likely to exceed Singapore’s economy in size next year, it is well placed to stand at the fore in tech deals in the region.
That said, however, Vietnam still faces challenges. Advancements in tech infrastructure have helped, but internet provision remains dependent on a small number of undersea cables that are frequently “bitten by sharks”. Concerns about technology versus government control remain very real. And the education levels of locals remain minimal compared to some advanced economies. From human resource issues to infrastructure to regulation Vietnam must exert a great deal of effort if it wishes to lure in the investment it so desperately seeks in technology FDI and, more importantly, M&A.