Tiểu luận m a trends in the world and in vietnam

M&A Trends in the World and in Vietnam FOREIGN TRADE UNIVERSITY CLASS DTUE 310.2 M&A Trends in the World and in Vietnam November 2012 Page | LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com M&A Trends in the World and in Vietnam Contents Introduction 1 Factors driving cross-border M&As .2 1.1 Macro-level factors 1.1.1 1.2 Industrial-level factors 1.2.1 Major sector .2 1.2.2 Related industry .2 1.3 Firm-level factors 1.3.2 Difference of skills 1.3.3 Difference of firm strategies 1.4 Technology-related factors .3 1.4.1 Difficulty of R&D 1.4.2 New technology .3 1.5 Government-related factors .4 1.5.1 Government Policy The trend of cross-border M&As in the world .4 2.1 Overview 2.1.1 Cross-border M&As and Greenfield investment .4 2.1.2 Cross – border M&As and Domestic M&As 2.2 Regional trend in cross – border M&As 2.2.1 Host countries ( the sellers) .7 2.2.2 TNCs (the buyers) 2.3 Sectional trend of M&As 11 2.3.1 Primary industry 12 2.3.2 Manufacturing industries .13 2.3.3 Services industries 14 2.4 Economic growth .2 Prospects and conclusion 15 The trend of cross-border M&As in Vietnam 17 Page | LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com M&A Trends in the World and in Vietnam 3.1 Overview .17 3.2 Trend in region/economy of purchaser 18 3.3 Trend in sector 20 Opportunities and Challenges for Vietnam 21 4.1 Opportunities 21 4.1.1 Vietnam is considered as an attractive destination of M&A 21 4.1.2 On the investors’ side 22 4.1.3 On the firms’ side 22 4.2 Challenges .23 4.2.1 Some legal issues 23 4.2.2 In general, Vietnamese (include the authority, enterprises, investors, intermediaries, brokers ) still lack of information and understandings about M&A which leads to 24 4.2.3 The weakness in competitive capacity, methods of specific management, national accounting apparatus that leads to 24 4.3 Solutions 25 4.3.1 Adjustment to the legal system 25 4.3.2 Improving knowledge and understandings about M&A .25 4.3.3 Improving skills and experience of intermediaries 25 4.3.4 Improving understandings and capacity of companies involved 25 Conclusion 27 References 28 Page | LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com M&A Trends in the World and in Vietnam Introduction Cross-border mergers and acquisitions (M&As) have grown rapidly recently Some transactions had the value about two times larger than the gross domestic product of Vietnam such as Vodafone Airtouch PLC and Mannesmann merger at about $183 billion and AOL Inc and Time Warner at about $165 billion (Wikipedia, Merger and Acquisition, Major M&A) Cross-border M&Asmust now be included among the fundamental mechanisms of industrial globalization In addition, cross-border M&As now contributes a greater part for total value of foreign direct investment rather than greenfield investment does It happens again and again in all geographical areas from developed countries to developing countries, and all industries However the proportion of cross-border M&As in difference areas, difference industries are incommensurate and it changes considerably over time Our paper aims to point out the recent trend of cross-border M&As in the world and in Vietnam In the first part, we list a number of factors that drive the M&As trend The second part shows the trend of M&As in the world from 2005 to 2011 This trend is analyzed in both different geographical areas and different industries Next we present the trend of cross-border M&As in Vietnam in recent years And in the final part we briefly suggest pros and cons of M&As situation happening in Vietnam Page | LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com M&A Trends in the World and in Vietnam Factors driving cross-border M&As Why is the number of cross-border M&As higher than before? Why most of cross-border M&As happen in developed countries? The answer is that there are many driving factors behind cross-border M&As Each factor plays a particular role and all of them decide the trend of crossborder M&As as a result Many factors affect the both two parts of foreign direct investment which includes cross-border M&As and greenfield investment.However, we just mention factors that mostly drive cross-border M&As Most of these factors are realized based on empirical evidences.In general, we can divide these factors into five groups as follows 1.1.Macro-level factors 1.1.1 Economic growth Economic growth affects both the supply and demand for cross-border M&As Obviouslyeconomic expansion increases the price of shares and earning so it raises the pool of capital for companies in home country to invest abroad Furthermore, an economic boom in host countries increases the short-term profitability of target companies for acquisition In contrast, an economic crisis is likely to prevent cross-border M&As According to the UNCTAD World Investment Report, in 2007, in which the world economy boomed remarkably, the value of cross-border M&As reached $1,023billion; however, in 2009, in which the world economy suffered a crisis, the value of cross-border M&As was only $250 billion 1.2.Industrial-level factors 1.2.1 Major sector Cross-border M&As tends to be concentrated in a few major industries recently According to the UNCTAD World Investment Report agriculture, petroleum, chemical and finance have remained a significant proportion of the total M&As value Out of these sectors, petroleum so far has been one of the most significant sectors for M&As One of the reasons is that petroleum has played a significant role as one of the main fuel supply in all industries; moreover, many of the world’s largest companies have been petroleum companies 1.2.2 Related industry Evidently, TNCs now often target firms which operate in the related industry for merger According to the UNCTAD World Investment Report, more than half of cross-border M&As took place in the similar or related industry Restructuring and concentration on a core business stand for the purpose of this situation Page | LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com M&A Trends in the World and in Vietnam 1.3.Firm-level factors 1.1.1 Achievement of competitive advantage Competitive advantage becomes an important reason for TNCs to conduct M&As For example, a TNC is certain to improve its competitive advantage through synergy from M&As such as production knowledge, labor skills, marketing capabilities, brand name and so on These advantages can be applied repeatedly and simultaneously to multiple locations and businesses in a non-rivalry manner 1.3.1 Difference of skills For many TNCs, the difference of skills is possible to create different decisions for M&As It has been observed that firms with technological skill frequently target greenfield investment while others with organizational and managerial skill prefer cross-border M&As (OECD Science, Technology and Industry Working Papers,2001) Here,technologicalskill is related to technology development and the ability to innovate in research and development, while organizational and managerial skill is associated with the ability to absorb and use existing knowledge 1.3.2 Difference of firm strategies Firms with difference strategies tend to have difference decision of foreign direct investment For example, a firm which has a shortage of strategic assets to be competitive frequently choose M&As as a sensible solution By merging with others, this firm is likely to gain more strategic assets such as facilities, human resources… In contrast, a firm which has abundant strategic assets seem properly target greenfield investment Thanks to greenfield investment the firm is able to protect its strategic assets such as secret recipes, managerial method… 1.4.Technology-related factors 1.4.1 Difficulty of R&D In the business world today, R&D not only become more important but it also cost more money compared to the past The soaring costs of R&D, combined with the uncertainties of technological change, have forced firmsto co-operate with others in global markets through various unions and strategic alliances in order to fundresearch expenditures for new products For example, the large R&D costs required to develop newgenerations of drugs is considered the major driving force for M&As in the pharmaceuticals sector 1.4.2 New technology Evidently new technology creates new markets and businesses such as in information technology industry Mergers and acquisitions can be a quick and easy way to react to competitors and acquire entry into new sectors and markets For instance, at the beginning of the 21 st century, Page | LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com M&A Trends in the World and in Vietnam TNCs merged many firms in telecommunications, media and information industries in order to capture new markets created by new technologies, particularly the growth of the Internet, and to provide more integrated global services 1.5.Government-related factors 1.5.1 Government Policy In addition to the above factors, government policy plays an important role to decide whether a TNC will get a M&A deal For example the repeal of all remaining restrictions on acquisitions by foreign investors in Korea at the end of the 20 th century attracted a large amount of M&A investment inflows into Korea One more example is that privatization policy that opens up the sale of State-owned enterprises to foreign investors can contribute to cross-border merger activityby increasing M&A targets and opening up economies to increased competition The trend of cross-border M&As in the world 2.1.Overview 2.1.1 Cross-border M&As and Greenfield investment Cross-border M&As is defined as a form of Foreign Direct Investment in which an enterprise from one country buys the whole asset or controlling percentage of an enterprise in another country Cross-border M&As consists of horizontal M&As, vertical M&As and conglomerate M&As Greenfield investment is also Foreign Direct Investment where a parent company sets up the completely new production venture at the host country While Greenfield investment adds new productive facility, which is an addition to existing production capacity of the economy, M&A transfers the ownership of existing asset into foreign companies In recent year, cross-border M&As seems to take some advantage over Greenfield Investment in some aspects such as technology transfer, economies of scale, strategic assets, etc Because of the more efficiency in resources, the growth of cross – border M&As has been more popular than Green field Investment 2.1.2 Cross – border M&As and Domestic M&As Based on the nationalities of the transacting parties, M&A transactions can be divided into two categories: domestic M&As (where participating parties are of same nationality) and crossborder M&As (where participating parties come from different countries) In attempt to trade with other foreign countries for mutual benefits, domestic companies usually merge or acquire Page | LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com M&A Trends in the World and in Vietnam with other foreign companies in spite of their domestic countries This is due to the ambition to become more powerful abroad, to integrate with other countries, etc Recently, cross-border M&As has been largely overshadowed by domestic M&As, both in the number of transactions and in their total value Overall, compared with Greenfield Investment and domestic M&As, Cross-border mergers and acquisitions (M&As) have rapidly increased in recent years, accelerating the globalization of industry and reshaping industrial structure at the international level M&As are taking place in a range of regions –developed countries; developing countries and industries - including mature manufacturing sectors, high technology fields and service sectors - and reflect a need to restructure and strengthen global competitiveness in core businesses This fact will be proved in the next two parts of this working paper 2.2 Regional trend in cross – border M&As Due to the difference in the mode of investment, cross border M&As is expected to exhibit different impacts on host countries (the sellers) and TNCs countries (the buyers) In this working paper, we will find out the trend of cross – border M&As through both host countries and TNCs countries The table below shows the net cross-border sales and net cross-border purchases by regions/economies of the world reported by UNCTAD 2012 of some selected countries in the world during the period 2005 - 2011 Page | LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com M&A Trends in the World and in Vietnam TABLE 1: VALUE OF CROSS – BORDER M&As, BY REGION/ECONOMY OF SELLER/PURCHASE 2005 -2011 (MILLIONS OF DOLLARS) - (Source : UNCTAD 2012 –Annex I.3) Page | LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com M&A Trends in the World and in Vietnam 2.2.1 Host countries ( the sellers) There may be a number of reasons for a firm to become the selling party to a cross-border M&A transaction Besides simply being targeted by a foreign investor which wishes to enter the host country by buying into a local firm, it can be because of a firm’s urgent need for capitals to get rid of its financial troubles when there are limited financial resources available in its home country; or it may be the strategy of a domestic firm to have a stronger presence in the world market Furthermore, the host countries can take advantage of technology transfer and make use of some strategic assets from TNCs Accordingly, the sellers in cross-border M&As are also playing the crucial role, which may affect many aspects of the transactions Different organizational structures of the sellers may produce different legal consequence to cross-border M&As Trends in cross-border M&As differ among developed countries, developing countries and countries in transition Nevertheless, developed countries play a major role as the host countries Cross- border M&As trend of developed host countries According to the UNCTAD definition of developed countries, which includes 24 OECD countries (excluding Korea, Mexico, Poland, Hungary and the Czech Republic), plus South Africa and Israel It is clear that the developed countries play an crucial role as the host countries of cross –border M&As During the period from 2005 to 2011, they took up a major proportion in M&As in the world Last year, developed countries reach 409,691 million dollars, accounting for nearly 80% of the total From this above table, there was a boom in net cross –border M&As sales in 2005 – 2007 In 2007, the net cross – border M&As sales of the developed countries and the world was 891,896 million dollars; 1,022,725 million dollars, respectively According to UNCTAD’s analysis, this cross - border M&A sales boom is partly caused by increase in the activities of collective investment funds – private equity funds and hedge funds – in FDI In 2005, cross– border M&A activities increased significantly, which took up to 88% the net cross – border M&As sales of the world, drove the rise in FDI inflows to developed countries Flows were particularly buoyant in the United Kingdom, France, and the Netherlands The European Union as a whole continued to be the largest host region, attracting almost 40 % of total FDI inflows in 2007 After reaching at the peak of net cross – border M&As sales in 2007 and dropping sharply during the next two year because of the world financial crisis, the developed host countries’ net sales have been improved There may be a promising future for the net cross – border M&As sales of the developed countries Page | 10 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com M&A Trends in the World and in Vietnam FIGURE 7: Cross – border M&As trend in services industry in term of value and numbers of deals during 2005 -2011 (Source: UNCTAD 2012 – annex table I.5 & I.6) 8.2.Prospects and conclusion Based on the statistic data reported by UNCTAD 2012 on the cross – border M&As net sales/purchases 2005 – 2011 in term of value (millions of dollars), we have forecasted the trend of cross – border M&As net sales/purchases in the near future as follows This below table is summarized the total net cross - border M&As sales/purchases in the world during 2005 - 2011 Net sales/purchases Time period Year (millions of dollars) (X) (Y) 2005 462253 2006 625320 2007 1022725 2008 706543 2009 249732 2010 344029 2011 525881 TABLE 4: Total cross – border M&As net sales/purchases 2005 – 2011 (Source: UNCTAD 2012 – annex table I.3) Page | 18 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com M&A Trends in the World and in Vietnam Model: OLS, using observations 2005-2011 (T = 7) Dependent variable: y const x coefficient 725882 -40881.8 Mean dependent var Sum squared resid R-squared F(1, 5) Log-likelihood Schwarz criterion rho std error 222534 49760.0 562354.7 3.47e+11 0.118942 0.674993 -96.12240 196.1366 0.126603 t-ratio 3.262 -0.8216 p-value 0.0224 ** 0.4487 S.D dependent var S.E of regression Adjusted R-squared P-value(F) Akaike criterion Hannan-Quinn Durbin-Watson 256074.7 263305.3 -0.057270 0.448704 196.2448 194.9077 1.587665 From Gretl with OLS method, we have the followings estimation model: = 725882 – 40881.8X  The regression for trend is : t = 725882 – 40881,8X t (est - 2012) = 725882 – 40881.8*8 = 398827.6 FIGURE 8: Cross – border M&As trend by using regression model (2005 – 2011) Page | 19 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com M&A Trends in the World and in Vietnam We have used “time series analysis” to forecast the trend in cross – border M&As in the world in 2012 As we can see from this table, after reaching the peak of above US$1 trillion in 2007, the total cross – border M&As dropped dramatically This is due to the world’s financial crisis in 2007, which has affected to the world’s economy up to now In this working paper, we saw some slight recovery of cross – border M&As trend in recent year However, the trend of the overall picture of cross – border M&As seems to continue decline in the next years The trend of cross-border M&As in Vietnam 9.1.Overview M & A activity in Vietnam only the rapid increase in the number and value of transactions from a few years back, especially since our country participate Organization World Trade (WTO), with multiple barriers lifted investors and multinational companies participating business in Vietnam Prior to 2007, in Vietnam each year not more than 50 M & A deals, with the highest value traded in U.S $ 300 million But since 2007 the number of M & A cases increased dramatically Specifically, in 2007 there were 108 cases with a total value of $ 1.72 billion; 2008 there were 167 cases with more than $ 1.1 billion; 2009 there were 295 M & A deals with a total value of nearly 1.138 billion; 2010 345 M & A activity with values up to $ 1.75 billion In 2011, the continuous development marks a step up to the value of the deal has completed $ 2.67 billion, 1.5 times in 2010 Beginning in 2011, the M & A activity involving foreign elements accounted for 81.3% In which the main cash flow comes from Japanese corporations Place the field of M & A is active in finance, real estate and consumer goods FIGURE 9: M&As Situation in Vietnam (2003-2011) Page | 20 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com M&A Trends in the World and in Vietnam FIGURE 10: M&As Growth in Vietnam and Asia-Pacific (2002-2011) M&A Ratio In 2008, 1.1 / 11.5 = 9.57 % In 2009, 1.138 / 10 = 11.38 % In 2010, 1.75 / 11 = 15.9 % In 2011, 2.67 / 11 = 24.27 % It is easily seen that the ratio of M&A in FDI in the period of 2008-2011 kept increasing After years, the disbursed money from FDI which was M&A deals’ value has increased 2.54 times that shows the development of M&A trend in Vietnam in 2008-2011 It also means that the ratio of Greenfield investment in FDI has decreased and M&A has become more and more popular 9.2.Trend in region/economy of purchaser Over 60% of M&A activity in Vietnam has foreign elements Page | 21 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com M&A Trends in the World and in Vietnam FIGURE 11: Proportion of M&As in Vietnam The purchasers who are investors in M&A investment in Vietnam almost are Asian Pacific countries and some from Europe such as The UK, German, etc In the 2008, the leading investors are: Malaysia, Taiwan, Japan, Singapore and Brunei It is worth noting that no less than 10 projects at over US$ billion were granted investment certificates compared to only in 2007 In 2009, 43 countries and territories investing in Vietnam, the biggest investor in turn is the United States with a total registered capital of $ 9.8 billion accounted for 45.6% of total capital investment in Vietnam, Cayman Islands ranked second with a total registered capital of 2.02 billion accounted for 9.4% Samoa is ranked third with a total registered capital of $ 1.7 billion, accounting for 7.9%; South Korea ranked fourth with $ 1.66 billion registered capital, accounting for 7.7% of the total registered capital For 2011, China took the lead with 22.7% in cash flow of M&A for the Vietnamese market, followed by the USA Japanese investors tend to invest heavily in both the consumer goods industry and finance Page | 22 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com M&A Trends in the World and in Vietnam These are two areas of rapid growth in recent years and the investment objectives of many foreign financial institutions Purchasers US $ (million) % China 609.0 22.7 The USA 572.8 21.4 Japan 236.4 8.8 Russia 196.0 7.3 Vietnam 424.2 18.4 Others 570.9 21.4 Contribution in M&A deals value in 2011 9.3.Trend in sector Top M&A invested sectors in the period 2008-2011: 2008: Financials, Industrials, Materials, Media and Entertainment, Consumer Staples 2009: Industrials, Energy and Power, Financials, Materials, Consumer Staples 2010: Industrials, Energy and Power, Petroleum and Clothes 2011: Consumer goods, Financials, Real Estate, Leisure, Travel The investors of M&As kept focusing on industrial, consumer goods, banking and finance A significant number of other potential areas in M & A activity are telecommunications, mining, pharmaceutical, entertainment and communication The transfer of real estate projects will also continue to be interested Specifically, in the area of banking and financial services, with the restructuring plan, this is still a potential field of M & A and investment As announced by the State Bank and the bank's plans, is expected to have - business merged bank will continue to take place Trade related to selected strategic partners Vietinbank next after not agree with Nova Scotia will contribute a great value in the private placement transaction In the consumer goods industry, with a market of nearly 90 million people, young people, the business in the field of consumer goods is also very interesting The deal could include the Page | 23 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com M&A Trends in the World and in Vietnam transfer of the company owning the brand long-standing local or emerging, together with a market share for some types of goods The producers in the industry always have a high weight in the statistics of M & A in the past, as well as in the near future in Vietnam Businesses in this area, more or less owns the assets of the project value, land, buildings, systems and objects suitable for the acquired companies in the same industry or links With real estate, the growth momentum of the economy, the real estate market in Vietnam as a potential market, so the last two years, which is the field of attraction of foreign capital This is understandable However, the after hot growth stage, some segments of the market becomes saturated Meanwhile, the capital of the region is difficult Can forecast demand for transfer of real estate projects will continue to take place in the next few years Pharmaceutical, medical and healthcare sector is a lot of potential In 2011, business acquisition CFR large stake of Domesco, business acquisition Fortis Hoan My Hospital is a signal that, foreign investors are interested in Vietnamese enterprises in this field Production of pharmaceutical, medical and health care industry has huge growth potential in the coming years However, the production capacity of the pharmaceutical companies is weak Many pharmaceutical companies just stop at the distribution activities Another field of interest is mining This industry also many hidden opportunities yet to be fully exploited, and strategic collaboration between the local mining company relations, permits the mines, with international companies likely capital and technology to focus intensive processing 10 Opportunities and Challenges for Vietnam 10.1 Opportunities 10.1.1 Vietnam is considered as an attractive destination of M&A     With the globalization of economic activities, the speed of economic growth is faster, estimated at more than 7% from 2001 up to now, which is considered as a big motivation Becoming a member of WTO means many tariffs and barriers are removed The Investment Law and Enterprise Law coming into effect have created a much more equal environment for both domestic investors and foreign investors Potential market for investment: rather stable economy For all reasons mentioned above, investors as well as multinational enterprises found it attractive to increase their M&Aactivities in Vietnam Page | 24 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com M&A Trends in the World and in Vietnam 10.1.2 On the investors’ side 11 M & A is the shortest way to reach the market for the foreign investors The flow of foreign investment into Vietnam continuously increases dramatically One way for foreign investors to penetrate deeper into Vietnam’s market is through M&A, which can help them take advantage of the available distribution system, customer network, human resources to reduce costs and shorten the time of entering the market and this acts as a momentum for M&A activity’s development 12 Trends of equitization and privatization The increase in capital flows of private investment funds as well as companies issuing securities on the stock market, trends of equitization and privatization are becoming more popular In addition, the trend of lowering the interest rates of the main currencies in the world has contributed much to the pouring money of investors into host companies in order to hold more shares of them This is another reason increasing the trend of M&A in Vietnam 12.1.1 On the firms’ side 13 Pressure of improving business performance The pressure of improving business performance in competitive conditions is increasing stronger, particularly when the whole economy is facing difficulty: One fact is that most Vietnamese enterprises have smaller scales than foreign enterprises, less experience in economic market, are weaker in financial capability, lack of human resources capable of corporate management Meanwhile, the demand for competition requires reducing costs in doing business, improving company’s status in the market, reaching new markets, expanding globally, attracting more potential customers, creating more value…In this unequal competition, cooperation in general and through M&A in particular among Vietnamese enterprises plays a vital part in surviving And that is the way to motivate the domestic companies as well 14 A channel of capital mobilization In the condition of economic difficulty, Vietnamese enterprises are facing many challenges According to recent statistics, there are about 350,000 active enterprises, of which more than 95% are small and medium enterprises Things these enterprises have in common are small capital scale, management level is not high, and access to technology is limited They are the factors restraining the development of enterprises in such a fierce integration environment Besides, mobilizing channels of enterprises are getting narrower due to the fact that high inflation, net export breaks the record that forces the Government implements contractionary monetary policy This leads company into a hard way to access to bank credit or access with a higher cost, Therefore, production and business activities face difficulty, many real estate Page | 25 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com M&A Trends in the World and in Vietnam projects and infrastructure development projects are delayed, a large number of manufacturing business activities are in moderation In addition, the stock market continues to decline leading to mobilization activities fall into deadlock So the trend of looking for another effective channel for capital mobilization aims to stabilize and expand the business is necessary And M & A is a form of raising capital to meet this demand 15 M & A is the access to technology transfer, skilled management, experience… M&A brings to the firms chances to reach advanced management science as well as secrets of modern technology of the foreign investors which can improve the value of the firm The increase of M & A in the recent two years is a positive sign illustrated that foreign investors appreciate the opportunity to invest in Vietnam Besides the factor of high speed economic growth and the prioritized policies, the legal system relating to the M & A is an important factor as well contributing to attract the interest of the foreign investors The commitment of the Government of Viet Nam in the process of implementation of WTO together with the Decree on sale and merger of enterprises contains foreign elements composed by the Ministry of Planning and Investment will create favorable conditions for the domestic firms and foreign firms to repurchase shares The legal procedures for conducting M & A and the percentage of ownership of the foreign investment in acquisitions will also be specified in order to create a legal framework to protect the rights of parties involved and to create a work environment of transparency, fairness and efficiency This will be an opportunity for investors to participate in amore extensive of the M&A market for the time coming 15.1 Challenges M & A is kind of a relatively complex activity with many hidden risks Knowledge and understandings of the oneswho involve in the M & A market as well as the formulation of a legal framework for M & A activity will be important factors contributed to the success of this activity However, this is exactly the problem still existing in Vietnam market 15.1.1 Some legal issues   M&A is quite new in VN so we haven’t got a separate legal system to adjust for this activity M & A activity is still under provisions scattered throughout many different acts, codes and legal norms document, moreover, the acts are rather ambiguous, general, lack of details and not match with others This makes not only parties involved in M&A face difficulties in following but also the authority finds it hard to control all the M&A activities Page | 26 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com M&A Trends in the World and in Vietnam 15.1.2 In general, Vietnamese (include the authority, enterprises, investors, intermediaries, brokers ) still lack of information and understandings about M&A which leads to 16 For enterprises: Lack of information on the market or partners In fact, there are many companies want to purchase and others want to sell out but most of them don’t have basic understandings about M&A so they don’t know how to prepare, how to implement and still wonder what would happen after M&A They cannot by themselves find a suitable partner In addition, still existing reserved attitude which make sellers feel afraid to provide more information about their companies 17 For professional investors, consulting organizations, brokers: Lack of capacity and experience Nowadays, there are quite a lot of stock companies, financial consultants, auditors taking part in the market as intermediaries, brokers for the ones interested in M&A However, due to the limitation in law, legal documents, human resources, profession, information, database… these organizations cannot meet all the demand in the M&A market to become the right intermediaries to connect both sides of M&A or in conclusion, not have enough capacity and experience to provide full service for M & A marketlack of professional trading channels for enterprises to exchange and implementation of M & A 18 For human resources: Still lack of necessary skills and qualifications about M&A activities The shortage of qualified top managers who are supposed to be the directors of the new entity after M&A is also the reason why enterprises feel afraid to make decision relating to M&A The problems to be solved here is that for the coming period, every single staff should be trained professionally, specially suitable for their positions 18.1.1 The weakness in competitive capacity, methods of specific management, national accounting apparatus that leads to 19 Weakness in competitive capacity The weakness in competitive capacity considered in aspects: the country, enterprises and products In 2006, The World Economic Forum (WEF) estimated and ranked the competitive capacity of Vietnam was 77th/125 nations, dropped down steps compared with 2005, and in 2007 this figure was only 91th/118 This is an obstacle for access to M&A 20 Lack of experience in evaluating M&A projects Page | 27 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com M&A Trends in the World and in Vietnam One of core specialized problems of M&A is evaluating the value of firm which is always a complicated problem for both investors and the enterprise in the negotiation round For young markets like Vietnam, taking advantages of means of value evaluating such as DCF method is a big problem, especially in the asymmetric information condition when the financial information, transaction information between the related parties still lacks of transparency or with low quality On the other hand, M&A is still something new in Vietnam’s market; it includes hidden risks of market acquisition and unfair competition These threats result from many weaknesses mentioned above, from the management on both macro-level and micro-level 20.1 Solutions The ways to help M&A in our country developed is the solutions for challenges mentioned above 20.1.1 Adjustment to the legal system First of all, adjustment to the legal system should be made to regulate M&A activities These adjustments should be detailed provisions in both sides:   The procedures, principles, methods of valuation, the rights and obligations of parties involved The financial situation handlings, labor, and other issues arising after the deal M&A 20.1.2 Improving knowledge and understandings about M&A Secondly, for both sellers and buyers, should update knowledge and understandings about M&A as much as possible, Vietnamese enterprises in particular The clear awareness of the strengths and weakness of the enterprise in integration period is necessary Both parties need to consider about the coordinate and development model that help them both gain benefits from negotiation 20.1.3 Improving skills and experience of intermediaries Thirdly, for the intermediaries, they need to level up their staffs’ skills, qualifications and experience, develop the database system…to become the market settler for buyers and sellers to meet each other in a convenient way as well as level up the service quality provide for parties involved M&A 20.1.4 Improving understandings and capacity of companies involved Especially for companies engaged in M&A, as this is a huge challenge, they need to:  Thoroughly understand M&A and legal norms about M&A Page | 28 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com M&A Trends in the World and in Vietnam    Evaluate properly the situation, from identify the goal to valuate a deal, identify the deal structure To so, they must collect a huge amount of database from different sources, not only from internal experts but external experts as well to find the most suitable way to implement and negotiate successfully in a deal Formulate the next plans and projects effectively Success in M&A relates directly to the level of projects go with them Detailed plans affect much to the success of M&A deal According to a research of PA Consulting Group and University of Edinburgh Management School, based on 85 M&A deal with the value for each estimated at about GBP50 millions, illustrated that the companies having detailed plan for M&A will have short-term stock value of 4,5% higher than ones who don’t have detailed plans These plans should have explicit goals, reasonable agenda and include basic problems of the organization such as human resources, system, and management These plans should focus on the harmony in the whole system, structure and process in merged companies Well prepare for managerial decisions; deal with business matters before like staff abundant and gain economies of scale Among these things, decisions related to human resources and customers are very important that may result in depression in staff’s and customers’ spirit if not careful and then lead to the failure of M&A deal Page | 29 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com M&A Trends in the World and in Vietnam Conclusion After global economic crisis from 2007 to 2009, cross-border M&As have increased in consecutive years together with the recovery of the world economy In addition, as accounted for more than 50%,M&As now play a major role of foreign direct investment Moreover, the main industries of M&Asare almost the biggest industries in the world Therefore, without doubt, M&A transactions reflect the world economic activities in the most specific and transparent way With the thriving growth of developing and transition economies, as well as the potential expansion of some new industries, the trend of M&As is expected to change dramatically in the near future Economists, policy makers and transnational corporations must follow closely the trend of M&As to make sensible decisions because in present era, a wrong decision can probably cause an economic downturn Similarly, the cross-border M&A activities in Vietnam have increased in both quantity and value recently This trend has brought about many opportunities and threads for Vietnam Hence, there is a substantial pressure on Vietnamese government to take advantage of these opportunities to stimulate the economy in the coming years In order to that, it is necessary for the government to impose practical policy and conduct them exactly Everything is still ahead so we have to wait for the result to determine whether it is successful or not Page | 30 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com M&A Trends in the World and in Vietnam References 1)OECD Science (2001) Technology and Industry Working Papers, Cross-Border Mergers and Acquisitions, Their Role in Industrial Globalization 2) United Nation (2010) Virtual Institute Teaching Material on Economic and Legal Aspects of Foreign Direct Investment, Module 1, Theme 3) http://m&a-market-analysis.aspx.htm 4) http://projectconcentrus.wordpress.com/2010/07/24/nonprofit-ma-trendsmergers-and-alliances/ 5) https://mail-attachment.googleusercontent.com/attachment/u/0/? ui=2&ik=ed7e52010b&view=att&th=13b047354eb2a51f&attid=0.2&disp=inline& realattid=f_h9jywim61&safe=1&zw&saduie=AG9B_P9dnOXSO16RKrouCXhbVSA&sadet=1354193280536&sads=HdgOuZIeNCUI2cRHgdFn3Cglzcs&s adssc=1 6) http://www.tilleke.com/resources/tricks-trade-guide-ma-vietnam 7) http://www.kh-sdh.udn.vn/zipfiles/So34/145-151.pdf 8) UNCTAD (2012) World Investment Report 2008 9) UNCTAD (2011) World Investment Report 2009 10) UNCTAD (2010) World Investment Report 2010 11) UNCTAD (2009) World Investment Report 2011 12) UNCTAD (2008) World Investment Report 2012 13) http://en.wikipedia.org/wiki/Mergers_and_acquisitions 14) http://unctad.org/en/Pages/DIAE/World%20Investment%20Report/AnnexTables.aspx Page | 31 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com M&A Trends in the World and in Vietnam Review by group leader Name Tran QuangHuy(Leader) Do ThiLanHuong Nguyen Thi Thu Huong Nguyen ThiThanhHuong Work - Part Introduction and conclusion Document Editor Feedback Part Feedback Responsibility Good - Part Poor - Part - Feedback Good Page | 32 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com ... M&As Situation in Vietnam (2003-2011) Page | 20 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com M &A Trends in the World and in Vietnam FIGURE 10: M&As Growth in Vietnam and Asia-Pacific... LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com M &A Trends in the World and in Vietnam transfer of the company owning the brand long-standing local or emerging, together with a market... to invest heavily in both the consumer goods industry and finance Page | 22 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com M &A Trends in the World and in Vietnam These are two areas