Illustrative image (Photo: VNA) “While the country’s fundamentals are still strong, we are not immune from suchnegative movements as the downturn in the capital flow from developed countriesto emerging markets, geopolitical tensions, and high inflation. Those trendscast doubt on investors’ confidence in Vietnam and many other markets,” TranVinh Du, leader of EY Indochina Strategy and Transactions, said in the analysisreleased last week.
“In the Vietnamese market, we still observed strong growth of private equity(PE) and venture capital (VC) investments during the first half of the yeardespite some turbulence in equity and debt markets. According to our research,the total deal value transacted in H1 2022 in the country was almost the sameas the total deal value transacted in the whole of 2021 (4.97 billion USD).”
However, according to Du, the technology sector in Vietnam has not been asstrong as expected although receiving strong interest from investors.
“There were only four tech-related deals announced in H1 as reported byMergermarket, compared to seven deals at the previous cycle,” he said.
A sizable one in H1 2022 was a deal of Vietnam-based e-commerce solutions providerOnPoint, worth 50 million USD from an indirect wholly-owned subsidiary ofTemasek. The deal targeted Vietnam’s fast-growing e-commerce industry andbecame the largest private fundraising round in Southeast Asia’se-commerce-enabler industry in the last five years.
In recent years, the main technology fields, that have attracted a large amountof investment capital in Vietnam, included e-commerce, Fintech, Ed-tech,Logistics and business automation.
According to EY’s analysis, despite major geopolitical and financial headwinds,global M&A activity in the first half of 2020 has been resilient. With 2,274deals with a total value of 2.02 trillion USD, M&A in H1 2022 may have seena drop compared to this time last year (down 27% by value and 18% by volume),but activity is up compared to the average of the last M&A cycle (up 35%and 13% respectively).
The nature of cross-border deals is changing to reflect geopolitical tensionson the world stage. While cross-border transaction levels in H1 have decreased(24% in 2022 against an average of 30% over 2015-19), the share of cross-borderdeals among closely affiliated countries has increased (51% in 2022 compared toan average of 42% over 2015-19). The analysis finds that investment from Chinainto the US has fallen from 27 billion USD at the high point in H1 2016 to 1.9billion USD, while North American investment into Europe has increased from 60billion USD to 149 billion USD over the same period.
Andrea Guerzoni, Vice Chair of EY Global Strategy and Transactions, said:“Coming off the SPAC-induced highs of the first half of 2021, M&A activitywas always going to go through a correction. But what we see is that unlikewhen COVID-19 hit and deal activity came to a standstill, CEOs are still tryingto look through the fog and are pursuing transactions that will help positiontheir organisations for future growth. On the global stage, while there isstill a strong appetite for cross-border deals, CEOs are more selective in whomthey do deals with, preferring to ‘friend-shore’ their operations and pursuetransactions within friendly pockets rather than applying a truly globalapproach.”
According to EY, despite the widespread uncertainty, a fragile global economy,and increased regulatory intervention, M&A is continuing apace, with aparticularly strong flow of private capital driving activity. Even thoughcapital market conditions have tightened sharply through the first half of2022, PE firms still have large amounts of cash that will need to be deployedin the latter half of the year.
“A trend that I expect to become a mainstay in the coming months is the use ofprivate capital in both the equity and debt portions of transactions. Driven byboth the vast amount of private capital available and rising interest rates, Iexpect this trend will continue making the role of private markets even morefundamental to the global economy. A barrier to this flow of deals will be ifconditions deteriorate to the extent that debt financing dries up or becomesprohibitively expensive,” Guerzoni said.
According to Guerzoni, while global M&A activity has proved remarkablyresilient in the face of major geopolitical headwinds, it is uncertain whetherit could sustain further shocks, whether that is further lockdowns, heightenedgeopolitical tensions or a recession./.
VNA
