1
RATIONALE
In recent years, Vietnam's economy has made significant progress, and the growth rate of GDP has remained high and stable at between 7% and 8.5% from
From 2000 to 2007, Vietnam's accession to the World Trade Organization (WTO) in November 2006 brought significant advantages, opening up numerous opportunities for Vietnamese enterprises However, this integration also introduced intense competition with foreign companies, necessitating that local businesses enhance their competitive edge and expand their operations To thrive, companies must adopt new technologies, improve management practices, attract investment, and penetrate global markets One strategy to achieve this is through mergers and acquisitions (M&A), which have surged globally over the past two decades In Vietnam, M&A activities remain in their infancy, primarily limited to sectors like securities, insurance, and banking, due to a lack of legal frameworks Experts predict that M&A activity, especially in the financial sector, will accelerate, yet it faces inherent weaknesses and challenges that impact stakeholders This context inspires the exploration of "M&A: A Case Study in the Vietnam Banking System" as a thesis topic for my graduation from the Banking Academy.
RESEARCH OBJECTIVES
The researcher aims to analyze and evaluate the current state of mergers and acquisitions (M&A) within Vietnam's banking system This study will identify the achievements, weaknesses, and challenges associated with M&A activities in the sector Based on these findings, the researcher will propose recommendations to enhance the M&A process in Vietnam's banking industry.
RESEARCH QUESTIONS
In order to achieve the objectives, the research is conducted to answer the following questions:
● What are the current situations of M&A activities in Vietnam banking system?
● What are the achievements of M&A activities in Vietnam baking system?
● What are the weakness and problems of M&A activities in Vietnam baking system?
● How to improve the effectiveness of M&A activities in Vietnam baking system?
RESEARCH METHODOLOGY
Reliable sources of information are essential for conducting a successful thesis, making data collection a top priority In this study, the author utilized various information types, including books, newspapers, reports, and online searches Additionally, relevant studies by both Vietnamese and foreign researchers on M&A activities in Vietnam's banking system will be reviewed to provide a comprehensive understanding of the topic.
RESEARCH SCOPE
● The research focuses on M&A activity in Vietnam banking system from
● Research is conducted in Hanoi
- Secondary data: For the period from 2014 to early 2015
- Primary data: For the period from 2014 to early 2015
RESEARCH STRUCTURE
Chapter 3: The actual situations of M&A in Vietnam banking system
Chapter 4: Recommendations to improve the effectiveness of M&A activity in
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MERGER AND ACQUISITION DEFINITION
2.1.1 Definition of merger and acquisition
Mergers and acquisitions (M&A) refer to the consolidation of companies, with a merger specifically defined as the combination of two corporations into a new entity, where only one corporation continues to exist According to Gaghan (2011-2012), this process results in the merged corporation ceasing to exist Additionally, the Encyclopedia Britannica notes that a merger can occur through one firm acquiring the assets or shares of another, either through cash or securities.
An acquisition, as defined by Oxford Dictionaries in 2012, refers to the purchase of one company by another or the acquisition of assets or objects, without the formation of a new company.
2.1.2 Distinguish between mergers and acquisitions
While often used interchangeably, "merger" and "acquisition" have distinct meanings A merger occurs when two or more companies unite to form a stronger entity, whereas an acquisition involves one company gaining control over another by purchasing the majority of its shares In an acquisition, the target company ceases to exist as an independent entity, as the acquiring company fully integrates its operations, and the buyer's stock remains active in trading.
CLASSIFICATION
There are dissimilar criteria to classify M&A activity, and each criterion has a different implication for managing and applying
2.1.1 According to the company’s integration
Mergers are divided into three main types by the competitive relationships between the merging participants
A horizontal merger involves the consolidation of two or more companies within the same industry, typically competitors providing similar goods or services This type of merger is common as larger firms seek to achieve economies of scale by eliminating redundant facilities, reducing competition and costs, and ultimately increasing their share price and market presence.
A vertical merger occurs when two or more companies at different stages of production and distribution unite to produce a specific finished product While this type of merger does not decrease the number of businesses operating at the same market level, it can alter industrial behavior patterns By merging with suppliers or distributors, a company can reduce dependency and enhance profitability For instance, a bike manufacturer merging with a tire and rim company can lower costs for these components and potentially grow its business by supplying them to rival bike manufacturers.
A vertical merger occurs when a company combines with another entity at different stages of the production process, resulting in two main types: forward and backward mergers A forward merger happens when a company merges with its distributors, while a backward merger takes place when a company joins forces with its suppliers.
A conglomerate merger occurs when two or more companies from diverse industries unite, taking two primary forms: pure and mixed A pure conglomerate merger involves companies with no direct business connections, such as a financial firm acquiring a construction firm to diversify its investment portfolio In contrast, a mixed conglomerate merger involves companies seeking to expand geographically or broaden their product lines.
However, conglomerate mergers commonly have no direct influence on competition
M&A activity is classified into two main types as follow:
National M&A involves mergers and acquisitions between firms within the same country, while International M&A refers to transactions between companies from different nations, representing the most prevalent form of direct investment today However, International M&A is significantly more complex than its national counterpart due to varying political environments, economic conditions, cultural differences, and diverse tax and accounting principles across countries.
2.1.3 According to the management's attitude
Friendly takeover : is an M&A transaction in which both target company and acquiring company are willing to conduct this deal because they believe they would benefit from the deal
A hostile takeover occurs in mergers and acquisitions (M&A) when the target company resists being acquired, yet the acquiring company persists in its efforts to gain control Typically, the purchaser leverages its financial resources to acquire the competing firm, aiming to reduce market competition.
MOTIVES FOR M&A
Mergers and acquisitions (M&A) are pursued with the belief that the combined value of merging companies exceeds their individual worth, often summarized by the equation "1+1=3" or "2+2=5." The primary motivations behind M&A include achieving greater efficiency, enhancing market share, and unlocking synergies that drive overall growth and profitability.
Mergers and acquisitions (M&A) create synergy by eliminating duplicate departments and operations, which lowers overall company costs while maintaining revenue streams This reduction in fixed costs can lead to increased profit margins for the combined entity.
Mergers and acquisitions can lead to significant benefits, particularly in increasing revenue and market share When a financially strong company acquires a struggling one, the newly formed organization often sees a notable rise in market share This enhanced entity typically operates with greater cost efficiency and competitiveness compared to the financially weaker predecessor, positioning it for improved performance in the market.
● Cross-selling: If company A merges with company B, A can use B’s customer database and persuade them to purchase products from A For example, a manufacturer can acquire and sell complementary products
Mergers and acquisitions lead to economies of scale, resulting in enhanced cost efficiency for the combined entity By merging, two companies can significantly increase their production capacity, which often lowers the cost per unit of output as production scales up This cost reduction is a key advantage of forming a larger, more efficient organization.
Under Business Law, companies that do not generate profits in a fiscal year are exempt from paying taxes This allows profitable companies to strategically acquire loss-making firms, enabling them to leverage the target's losses to minimize their own tax liabilities.
Geographical and other forms of diversification aim to stabilize a company's earnings and stock price over the long term, instilling greater confidence among conservative investors However, this strategy does not always translate into increased value for shareholders.
Resource transfer is crucial as it highlights the uneven distribution of resources among firms The interaction between the resources of the target and acquiring firms can generate value by addressing information asymmetry and effectively combining limited resources.
Vertical integration occurs when a firm merges with or acquires another firm in its supply chain, either upstream or downstream One key motivation for this strategy is to address external problems, such as double marginalization, which arises when both the upstream and downstream firms possess monopoly power This scenario leads to reduced output and two deadweight losses By merging, a vertically integrated firm can eliminate one of these deadweight losses by adjusting the upstream firm's output to competitive levels, ultimately enhancing profits and consumer surplus Thus, a merger that results in vertical integration can be highly beneficial.
M&A PROCESS
According tothe audit firm PricewaterhouseCoopers (PwC), the merger and acquisition process can be divided into four main phases:
Companies seeking to engage in mergers and acquisitions must evaluate their financial health and decide if an M&A strategy is necessary to mitigate passive incentives It is essential for firms to adapt their strategies according to their business cycle while actively exploring potential M&A targets.
To facilitate the exchange of preliminary valuation information, it is essential to sign a non-disclosure agreement (NDA) or confidential agreement If the valuation differences are minimal and both parties reach a consensus, they can proceed to sign a letter of intent (LOI) and initiate the due diligence (DD) process, which involves a comprehensive review of the target company's operations, strategies, financials, and other critical aspects The roles of the buyer and seller are pivotal, with the sell-side providing necessary materials for the buy-side's due diligence and the buy-side conducting the target valuation Any issues identified during the due diligence process may result in an immediate halt to negotiations Valuations are finalized once any uncertainties are resolved or both parties agree on them.
During this phase, both parties finalize the deal's specifics and execute a legally binding Sales and Purchase Agreement (SPA) Following the signing of the SPA, a shareholders' meeting is necessary to identify any dissenting shareholders who may oppose the transaction After the negotiation phase, it is essential to address all relevant questions to ensure a smooth transition.
- How much resistance will it encounter from the target company?
- What are the advantages of target company after M&A deal?
- What is the bidding strategy?
- How much is offered in the first round of bidding?
After that, they have to verify the important documents, sign financing contract, and finally apply to governing authority for approval
The M&A transaction concludes when the buyer completes payment and the seller finalizes the handover, leading to the critical phase of post-merger integration This stage is often the most challenging due to the differing strategies, cultures, and information systems of each company Successful integration requires a comprehensive approach that includes personnel redeployment and the harmonization of systems, processes, and corporate cultures.
M&A IN THE WORLD
M&A activity in the United States began as early as 1890 and has evolved significantly through various phases until 2000 This trend expanded to the UK in the 1960s and to European countries in the 1980s Notably, the history of mergers and acquisitions has experienced five major waves of development.
The first wave happening from 1897 to 1907 followed the Depression in 1883, in which M&A transactions were mostly horizontal mergers and concentrated in mining, metals, petroleum, food products, and transportation sectors
The second wave of mergers and acquisitions (1916-1929) occurred during World War I and concluded with the stock market crash in October 1929 This period was marked by a prevalence of vertical mergers over horizontal ones, leading to the emergence of oligopolies rather than monopolies.
The third wave (1965-1969) was characterized by conglomerate mergers This period experienced the economic prosperity in the United States and several M&A deals were successfully conducted
The fourth wave of mergers and acquisitions (1981-1989) experienced significant economic prosperity, particularly in the mid to late 1980s During this time, there was a notable rise in hostile takeovers, although friendly takeovers remained predominant The number and value of M&A deals surged impressively, reaching billions of dollars.
The fifth wave (1993-2000) followed the economic recession of 1990-1991
Hostile takeover deals decreased, however, the value of M&A transactions remained as same as the previous level in the fourth wave
Following the Asian financial crisis, M&A activity experienced significant growth; however, there was a lull between 2000 and 2003 before it surged again starting in 2004 and continuing to the present day.
According to a Thomson Financial report, 2006 and 2007 set new records for both the number and value of mergers and acquisitions (M&A) in the global market In 2006, the total trading value of M&A transactions rose by 34% compared to 2005, while 2007 saw a further increase of 21% in total M&A trading value.
In 2007, economic experts identified a significant boom in the mergers and acquisitions (M&A) market, primarily driven by the financial crisis in developed economies, particularly in Europe and America This surge in M&A activity predominantly occurred within the banking and finance, oil and gas, and information technology sectors.
In banking and financial sector, the most notable transaction was the acquisition of three Scotland banks to ABN Amro of Netherlands Here are some figures about those M&A transactions:
Table 1: The world’s largest M&A deals in banking sector in period 1998-2007
Source: www.saga.com.vn
Year Buyers Sellers Value( trillion
2007 RBS, Santander, Fortis ABN Amro 96.6
2004 JP Morgan Chase Bank One 56.9
2003 Bank of America FleetBoston Financial 47.7
1999 Royal Bank of Scotland National Westminster
In early 2008, the global mergers and acquisitions (M&A) market experienced a substantial decline of nearly 25% compared to previous periods Despite this downturn, the volatile economic landscape may pave the way for robust future growth in the global M&A market.
CONCLUSION
Mergers and acquisitions (M&A) are revolutionizing the global economy, offering significant benefits to both parties involved and facilitating economic restructuring This trend has gained momentum worldwide, with a growing number of M&A transactions occurring daily across various economies Despite numerous successful engagements, M&A activities are inherently complex and carry substantial risks The rapid growth and intricacies of M&A present challenges for both participants and management agencies, warranting further discussion on this critical topic.
THE ACTUAL SITUATIONS OF M&A ACTIVITY IN VIETNAM
GENERAL PERFORMANCES OF M&A IN VIETNAM
The Business Law established in 1999 introduced merger and acquisition (M&A) as a form of restructuring, catalyzing M&A activities in Vietnam This trend began in 2000 and experienced significant growth from 2005 onward According to the audit firm PricewaterhouseCoopers (PwC), the M&A landscape in Vietnam has flourished during this period.
Table 2: The number and value of M&A deals in Vietnam from 2005 to 07/2009
The value of M&A deals (million USD)
Between 2005 and 2007, M&A transactions saw a notable surge in both quantity and value, peaking in 2007 when Vietnam experienced the fastest growth in the Asia-Pacific region However, the global economic crisis led to a decline in the total value of M&A deals in 2008 and the first half of 2009 During this period, over 70% of M&A transactions were concentrated in the banking and financial sector, highlighting its status as the most dynamic sector in recent years, followed by other industries.
Figure1: The percentage of M&A transactions in key industries in Vietnam
(Source: www.pwc.com/vn)
M&A activities in Vietnam remain modest compared to other regions According to PwC's 2006 report, the Asia-Pacific region's M&A data highlights this trend, with figures presented in millions of USD.
Figure2 : The number and value of M&A in 14 countries in the region
(Source: Asia Pacific M&A Bulletine (Year End 2006)
According to the chart, Australia and Japan dominated the M&A landscape, achieving a combined total of 10 billion USD in transaction value In contrast, Vietnam ranked the lowest in both the number and value of M&A deals, with figures significantly trailing behind those of other countries in the region.
M&A transactions in Vietnam typically involve the discreet acquisition of a portion of a business rather than the complete sale of a company, often occurring between prominent firms These deals usually range from $5 million to $250 million, indicating that the scale of M&A activity is predominantly small to medium Consequently, while M&A activity in Vietnam has seen some progress, it remains largely underdeveloped and limited in scope.
REAL SITUATIONS OF M&A ACTIVITIES IN BANKING SYSTEM IN
The history of Vietnam's banking system has been marked by significant challenges, leading to mergers and acquisitions (M&A) driven by internal bank weaknesses and state-directed reforms Between 1989 and 1993, the number of banks in Vietnam dwindled from 46 to 36, as 10 struggling banks were merged due to their inability to meet payment obligations These banks, characterized by low charter capital ranging from 5 to 20 billion VND and high bad debt ratios of 40-50% of total loans, faced imminent financial collapse if they had continued operating independently.
Allowing the bankruptcy of certain banks could have severely impacted the entire banking system and the Vietnamese economy At that time, the absence of a deposit insurance fund and compensation fund prompted the Governor of the State Bank of Vietnam (SBV) to direct major banks like Vietcombank, BIDV, and Agribank to merge with weaker banks This strategy aimed to stabilize operations, address bad debts, and ensure continued lending to creditworthy borrowers The situation arose due to the small scale of the economy, unclear lending practices among banks, and the lack of a stringent management mechanism from the central bank.
In response to the need for improved competitiveness in the Vietnamese banking system, the Prime Minister approved the "Reorganize and Restructure the Vietnamese Commercial Banks" scheme under Decision No 212/1999/QD-TTg on October 29, 1999 This initiative, alongside Regulation 241 governing the merger, consolidation, and acquisition of credit institutions, led several rural commercial banks to merge with acquiring banks, resulting in their transformation into urban commercial joint stock banks.
Table 3: Some M&A transactions between rural banks and large urban banks in
Vietnam in the period of 1999 – 2004
Year Rural bank Large urban commercial joint stock bank
1999 Dai Nam Bank Southern Bank
2001 Phu Chau Bank Southern Bank
2002 Dinh Cong Credit Fund (Ha Noi) Southern Bank
2002 Thach Thang Bank (Can Tho) Sacombank
2003 Cai San Bank(Can Tho) Southern Bank
2004 Tan Hiep Bank DongA Bank
Since 2005, the number of mergers and acquisitions (M&A) among local banks in Vietnam has declined, while both foreign and domestic investors increasingly invest in commercial banks by purchasing shares and forming strategic partnerships The trend of selling shares to strategic partners, particularly foreign investors, has gained popularity in the Vietnamese banking sector, especially following Vietnam's accession to the WTO, which brought numerous commitments to expand the banking and financial markets Consequently, M&A deals involving foreign entities have become more common.
Table 4: M&A deals between domestic banks and foreign investors
Source: Author’s data collection from bank websites
Foreign investors Target banks Share purchase(%)
Below are details of some typical deals:
In July 2005, after nearly a year of negotiations, Standard Chartered became a strategic shareholder of ACB, acquiring 8.84% of its shares Following this investment, ACB saw significant improvements in its reputation and service quality On May 5, 2008, Standard Chartered announced the purchase of an additional 6.16% of ACB's shares from the International Finance Corporation (IFC) and 7.1% of ACB's convertible bonds, raising their total ownership to 15% of shares and 15.86% of convertible bonds This partnership progressed further on March 12, 2009, when Standard Chartered Bank and ACB announced a collaboration for an ATM system and the launch of credit cards, allowing customers to access over 270 ATMs across major Vietnamese cities for free, while ACB will also issue credit cards to Standard Chartered customers.
In December 2005, HSBC acquired 10% of Techcombank shares for $17.3 million, part of a total investment of $30 million, following approval from the State Bank of Vietnam This strategic investment aimed to bolster HSBC's presence in the Vietnamese market Additionally, the two banks entered into a five-year technical assistance agreement, allowing HSBC to provide experienced professionals to enhance Techcombank's management in administration, marketing, and the development of retail and card services, while simultaneously pursuing market expansion in Vietnam.
In September 2008, Techcombank successfully issued an additional 5% of its shares to HSBC, increasing HSBC's ownership stake to 20% and raising Techcombank's chartered capital to 3,165 billion VND This move made HSBC the first foreign bank to hold a 20% stake in the chartered capital of a domestic bank in Vietnam.
On September 27, 2006, the Governor of the State Bank of Vietnam (SBV) approved VP Bank's decision to sell 10% of its shares to OCBC (Oversea-Chinese Banking Corporation), Singapore's oldest bank established in 1912 and a leading financial service provider in Asia with assets totaling $180 billion OCBC operates a network across 15 countries, boasting over 460 branches in key markets including Singapore, Malaysia, Indonesia, and Vietnam In October 2006, OCBC prioritized a training program for VP Bank staff, enabling selected young employees to undergo further training in Singapore On November 7, 2007, VP Bank agreed to increase OCBC's share ownership from 10% to 15%, reflecting their strong partnership and collaboration OCBC's support in technology transfer, staff training, and management capacity has significantly enhanced VP Bank's competitiveness By May 14, 2008, VP Bank and OCBC completed the necessary procedures to request SBV approval for the increase in OCBC's share ownership to 15%.
On February 1, 2007, Habubank and Deutsche Bank entered into an agreement for Deutsche Bank to acquire 10% of Habubank's shares, with the potential to increase its stake to 20% if permitted by law As a leading investment bank in Germany and Europe, Deutsche Bank boasts total assets of €1.097 billion and has been active in Vietnam since 1992, with branches located in Ho Chi Minh City.
Between 2006 and 2010, Habubank implemented a crucial agreement with Deutsche Bank, which provided essential technical assistance in capital and currency operations, risk management, investment strategies, and service development.
In early 2008, UOB, Singapore's largest bank, invested over 480 billion to acquire a 10% stake in Phuong Nam Bank (PNB), marking its entry as a foreign shareholder With branches and subsidiaries across Malaysia, Thailand, and Indonesia, UOB is committed to enhancing PNB's capabilities through training in product development, technology, and human resources, aiming to diversify its offerings and increase service fee revenues This strategic partnership is designed to foster mutual growth, improve PNB's management practices, and expand its financial service policies, enabling PNB to compete effectively with regional financial institutions.
In May 2008, ABBank sold a 15% stake of its charter capital to Maybank for 430 million ringgit, amounting to over 2,240 billion VND This acquisition positioned Maybank as a major shareholder in ABBank, following Vietnam Electricity Group.
Maybank entered into a contract with ABBank to implement a capital contribution plan, beginning with the acquisition of 15% of ABBank shares, with an additional 5% purchase contingent upon Prime Minister approval The agreement also included Maybank's provision of technical assistance, focusing on business planning, management system enhancement, and domestic network development Furthermore, Maybank supported ABBank in operational and market risk management, HR strategy, and the delivery of information technology solutions.
The expansion of banks and foreign financial groups in Vietnam through the acquisition of domestic commercial banks has yielded significant advantages for both parties Foreign entities benefit from reduced operational costs by leveraging existing networks, technical facilities, and a substantial customer base In turn, Vietnam's commercial banks enhance their financial strength, modernize technology, improve human resource quality to meet international standards, and broaden their business scope Additionally, domestic banks are keen to grow their scale and reputation by acquiring shares in other local banks.
Table 5: Some M&A deals between domestic banks from 2005 to 2008
Source: Author’s data collection from bank websites
VietBank DAB Kien Long Bank
Cross-ownership among domestic banks enhances their ability to support one another in various operational and developmental aspects, particularly during the era of international integration This strategic collaboration fosters resilience and growth within the banking sector.
EVALUATION
It cannot be denied that M&A activities have brought many benefits to both banks and the whole economy
Successful mergers and acquisitions (M&A) significantly enhance the financial market, particularly following the government's commercial bank restructuring project, which involved selling rural banks to larger urban counterparts This strategic move has salvaged banks on the brink of bankruptcy due to capital shortages and poor management Consequently, these successful transactions have fostered a healthier financial system, revitalized balance sheets by addressing 23 trillion dong in bad debts, reinforced operational discipline within the banking sector, and improved the competitiveness of Vietnam's banking system.
M&A activities significantly enhance the competitiveness and operational capacity of Vietnam's banking system For strong domestic banks, both acquiring and acquired, M&A reduces investment costs, expands market reach, and fosters collaboration to address challenges while leveraging each other's strengths Additionally, M&A presents a valuable opportunity for Vietnamese banks to partner with foreign financial institutions and international banks By increasing authorized capital, addressing financial weaknesses, and lowering costs through economies of scale, M&A improves service quality and diversifies product offerings Consequently, it serves as a crucial strategy for commercial banks to boost their operational efficiency and competitiveness in both domestic and international markets.
Collaboration with foreign partners offers domestic banks significant advantages in financial management, experience, and international expertise, addressing their inherent weaknesses during the integration process Successful partnerships between foreign and domestic banks underscore this benefit Furthermore, if a merger or acquisition (M&A) deal meets its objectives, it can lower operating costs and enhance market concentration, ultimately boosting the bank's income.
Mergers and acquisitions (M&A) serve as a vital strategy for Vietnam to attract substantial foreign investment, fueling economic growth and enabling the expansion of local banks This phase presents an opportunity for numerous foreign banks eager to enter the Vietnamese financial market.
Human resources play a crucial role in ensuring the smooth operation of the market, yet Vietnam faces a significant shortage of qualified personnel with essential training and experience Companies in the M&A sector encounter intense competition from firms in finance, banking, and securities This challenge arises largely because most professionals in the M&A field are newcomers, often transitioning from private banking and securities backgrounds.
Historically, mergers and acquisitions (M&A) involving rural and urban banks were primarily guided by state and government directives, which limited their initiative to explore M&A opportunities independently As a result, while these banks participated in M&A processes, they often lacked a comprehensive understanding of the intricacies involved in such transactions.
Many banks encounter confusion during M&A transactions due to a lack of knowledge about the process, which can result in unawareness of the associated benefits and risks This gap in understanding often leads to disrupted negotiations and financial losses for the banks involved Additionally, when the buyer is a foreign institution with experienced administrators and substantial resources, the potential drawbacks of the deal can be even more pronounced.
The value of M&A transactions in Vietnam's banking sector remains low compared to other regional countries, primarily driven by the increasing presence of foreign institutions As the M&A market in Vietnam is still developing and requires significant adjustments, many domestic banks operate on a smaller scale with lower chartered capital, resulting in weak financial capabilities and inefficiencies in administration Additionally, fierce competition among commercial banks for market share necessitates support from foreign financial institutions in technology, management, and administration to enhance their operational strength and growth potential.
M&A activities in Vietnam's banking sector are characterized by their simplicity, often involving the purchase of a minority stake rather than full control of the acquired entity These transactions are not about hostile takeovers; instead, they focus on fostering cooperation, overcoming challenges together, and leveraging each other's strengths for mutual growth.
Mergers and acquisitions (M&A) in the banking sector can yield significant benefits, but they also come with inherent risks Key consequences include the emergence of "black trade" aimed at gaining power and fostering unfair competition Additionally, merging banks can complicate expense structures due to expanded product portfolios M&A activities also pose challenges for managing distant branches, necessitating the integration of systems, work habits, and cultures Ultimately, a failed M&A transaction can lead to bankruptcy, negatively impacting the entire domestic banking system and the broader economy.
CONCLUSION
M&A activity in Vietnam has been ongoing for over a decade, yet the market remains relatively new and underdeveloped The pressure of integration compels economic entities to enhance their financial strength and competitiveness; however, key participants, including buyers, sellers, intermediaries, and legal authorities, have not fully aligned with the M&A process and integration trends While M&A activities have brought notable benefits, significant challenges and shortcomings persist in the Vietnamese market Acknowledging these obstacles is crucial for formulating effective strategies to advance the M&A landscape, enabling domestic enterprises to achieve their strategic objectives and strengthen their positions both locally and globally.
29
RECOMMENDATIONS FOR THE STATE AND MANAGEMENT
Vietnam's banking sector consists predominantly of small banks, which contrasts with the model of robust economies where a few large banks dominate, supported by substantial financial resources To enhance competitiveness and expand the economic scale, Vietnam should promote the consolidation of these smaller banks into larger entities However, this process should be driven by market forces rather than mandated by the government The State's role should be to facilitate this consolidation by creating a conducive environment for bank mergers while ensuring stability and safety in the financial system To achieve these objectives, the government must develop several strategic solutions.
4.1.1 Completing the legal framework for M&A
The current legal framework governing M&A activities in Vietnam is limited and often lacks specificity, which hampers the growth of the M&A market To foster successful M&A transactions, it is essential for the government to establish clear and detailed regulations that guide enterprises in navigating these processes effectively.
Mergers and Acquisitions (M&A) in Vietnam are governed by specific regulations outlined in various laws, decrees, and circulars, yet these provisions are often fragmented and primarily address the formal aspects of M&A transactions The current legal framework, exemplified by the new Competition Act, mainly focuses on horizontal mergers, highlighting the need for comprehensive regulations that cover other types of mergers to enhance the M&A market To address these shortcomings, the establishment of a dedicated law for M&A activities in Vietnam is essential.
M&A transactions in Vietnam's banking and financial sector are significantly influenced by foreign institutions and enterprises Consequently, legal documents governing these mergers and acquisitions must include provisions for foreign involvement The government should clearly define criteria for identifying foreign investors, broaden the foreign investment limits, and enhance regulations concerning the financial capacity, business standing, and legal compliance of foreign investors.
M&A deals necessitate the participation of various professionals, including brokers, financial experts, accountants, auditors, and consultants, whose roles are crucial for the transaction's success It is essential that these participants possess the appropriate qualifications and experience, as any negligence on their part can result in significant repercussions for businesses involved Therefore, establishing clear rules regarding the responsibilities, rights, and obligations of all parties in M&A transactions is vital to ensure the safety and security of the enterprises participating in these deals.
The primary concern for the State is to mitigate the negative effects of mergers and acquisitions (M&A), particularly the risk of monopolies that may arise from these deals Accurately determining market share post-acquisition is essential and can be achieved through various methods, each yielding different outcomes To prevent banks from exploiting this situation to create monopolies, the State must implement specific calculations Additionally, competition management agencies should establish values to regulate economic concentration, facilitating easier oversight of significant transactions Legal frameworks should also define transaction value limits to clarify management responsibilities between the Department of Competition Administration and other regulatory bodies The Department's role in overseeing M&A transactions is crucial for maintaining fair competition.
- Require businesses participating in M&A activity to notice the plan of conducting M&A deal and agreement between the parties
- Support for M&A process if the transaction does not cause any negative effects on the market or dismiss impossible transactions and must explain the reasons
- Inspect the transaction after licensing and check the procedures for conducting the transaction
- Specify clearly the time to report to the authorities
The government should clearly define prohibited M&A transactions in legislation, such as preventing any combination that results in a market share exceeding 50% of the relevant market Special attention is particularly needed to prevent the takeover of large financial conglomerates by Vietnamese commercial banks.
To foster a robust M&A market, it is essential to implement laws and regulations that support development, enhance benefits, and mitigate negative impacts associated with M&A transactions The legal framework for M&A should be forward-looking, avoid redundancy, and align with international standards In the banking and financial sector, the State must prioritize the completion of guiding circulars before conducting research to develop a comprehensive private law tailored to M&A activities, recognizing the complexity and unique characteristics of this service industry.
The lack of a dedicated agency to oversee and regulate M&A deals leads to confusion among participants regarding the complex processes and legal challenges involved This often results in wasted time as they navigate multiple organizations to secure necessary licenses Therefore, establishing a management agency is essential for effectively controlling, approving, and monitoring M&A transactions.
4.1.3 Increasing the transparency and publicity of the information
In M&A transactions, crucial information regarding price, brand, market segment, and administration is essential for both buyers and sellers Lack of transparency can lead to significant damage for both parties involved Similar to other markets, the M&A sector experiences a chain effect; a failed or deceptive large M&A deal can have severe repercussions on the overall economy Consequently, regulatory authorities must enforce comprehensive documentation for information disclosure across all types of businesses, extending beyond just public joint-stock and listed companies.
They also need to clarify the types of information that an enterprise must have obligation to provide timely and adequately for market management agencies
In M&A activities, trading partners can obtain reliable information from two primary sources: business partners and administrators This approach ensures that participants in M&A transactions receive comprehensive, accurate, and timely information, allowing authorities to effectively monitor the objectives and purposes behind the information requests.
M&A transactions rely on mutual agreement between partners, facilitated by consulting firms, making the sustainability of the M&A market contingent on the expertise of these firms However, the capabilities and operational scope of M&A consulting firms in Vietnam remain limited To address this issue, the government should support and promote the activities of intermediary organizations and establish reputable institutions specializing in M&A transactions to reduce risks for businesses Specific government initiatives could include measures to encourage the growth of professional M&A consulting companies.
M&A consulting organizations must adhere to specific standards, including financial stability, qualified personnel, and experienced management teams Additionally, it is crucial for the State to assess underperforming consulting firms, encouraging them to enhance their capabilities If they fail to improve, these firms should be mandated to cease operations to maintain industry integrity.
- Implement tax incentives in the early years of operation of a newborn consulting company
- Facilitate and quickly license to the companies (including foreign organizations), if eligible
4.1.5 Focusing on the training of human resources for M&A market
The success of a merger and acquisition (M&A) deal hinges on the collaboration among key participants, including buyers, sellers, brokers, and experienced consultants across various fields such as law, finance, and M&A expertise A robust legal framework and supportive regulations in the host country are also essential Consequently, having well-trained professionals with in-depth M&A knowledge is crucial for all parties involved, including consulting and brokerage firms, as well as legislative bodies Therefore, implementing targeted M&A training programs is vital for developing a skilled workforce in Vietnam's M&A market.
The Ministry of Education and Training is considering permitting select universities to establish specialized training programs in mergers and acquisitions (M&A) Initially, these programs may involve hiring foreign experts for instruction and providing opportunities for local professionals and lawmakers to study abroad in regions with advanced M&A markets However, it is crucial to regulate the number of trained individuals to prevent an imbalance characterized by "excess supply but deficient demand," reflecting the current state of human resources in Vietnam.
RECOMMENDATIONS FOR THE BANKS
Successful mergers and acquisitions (M&A) rely on multiple factors, including strong support from the State and Administration Additionally, participating banks, both buyers and sellers, must enhance their internal capabilities to effectively manage each phase of the M&A process and continue to do so post-completion This approach is essential for achieving long-term business success.
4.2.1 Develop a clear and effective strategy of M&A
Identifying the target bank for acquisition can be challenging for buyers, necessitating accurate information to avoid purchasing a "counterfeit." Engaging consulting or auditing firms can provide insights into the target bank's performance, management methods, technology, and human resources Once a partnership is selected, both parties must agree on the type of M&A transaction, relevant laws, and procedures, while proactively addressing potential challenges during negotiations Key issues regarding the rights and obligations of both parties should be thoroughly discussed early in the negotiation process, as the outcomes will significantly impact future operations Selecting experienced and well-trained team members for negotiations is crucial, alongside clear communication of goals to foster a positive atmosphere Ultimately, the M&A contract must comprehensively reflect the negotiation results and the expectations of both banks, detailing aspects such as buyer and seller status, purchase object, sale price, transfer timing, contract security measures, and post-M&A agreements Failing to adequately address these elements can lead to internal contradictions following the M&A deal.
To achieve a successful deal while minimizing risks and satisfying the requirements of both banks, engaging with professional consulting firms specializing in M&A is essential This collaboration will become an unavoidable trend in the future of mergers and acquisitions.
Evaluating an enterprise is a crucial step in the M&A process, as it enables buyers to identify potential value-adding factors within their target bank To achieve this, purchasers must conduct a thorough investigation, known as Due Diligence, which primarily focuses on legal and financial evaluations.
The primary goal of banks' legal evaluations is to help buyers comprehend their legal statuses, rights, obligations, and relevant regulations regarding various properties and employment contracts This process aids in identifying potential legal risks, enabling informed purchasing decisions Typically conducted by attorneys representing buyers, legal assessments are crucial in M&A transactions An M&A consulting attorney plays a vital role, as their analysis of the legal documents of the target firm serves as a foundation for both parties to determine whether to proceed with the purchase or merger.
Financial evaluations in M&A transactions are conducted by auditing agencies or independent auditors, as both parties typically have differing economic goals that can influence the business price Buyers aim to acquire at a lower cost, while sellers seek to maximize their returns, often leading to potential concealment of financial issues Consequently, auditors play a crucial role in determining the true value of a firm’s tangible assets and reconciling the interests of both parties Buyers must thoroughly assess the target bank's capital structure, revenue, market share, and customer base to make informed decisions.
Human resources play a crucial role in the success of businesses, particularly in the increasingly complex landscape of mergers and acquisitions (M&A) Unfortunately, many M&A transactions have faced significant challenges due to a lack of knowledge and experience in human resources, resulting in substantial financial losses and, in some cases, bankruptcy This pressing issue presents a significant challenge for both domestic banks and management authorities, necessitating immediate attention and resolution.
To enhance their capabilities in mergers and acquisitions (M&A), domestic banks should implement comprehensive training programs for their employees and consider opportunities for staff to study abroad in countries with advanced M&A practices Establishing strong partnerships with foreign banks can provide valuable support and insights into this growing trend, while participating in staff exchange programs can facilitate knowledge transfer Additionally, hiring M&A experts, despite the associated costs, can significantly improve deal outcomes and elevate staff proficiency, as these professionals offer critical guidance and foster skill development through collaboration.
Domestic banks should foster the intrinsic value of their employees by promoting teamwork and encouraging the sharing of ideas This collaborative approach enhances productivity and effectiveness, allowing staff to leverage their creativity to improve the efficiency of the banking system.
RECOMMENDAIONS FOR FURTHER STUDY
M&A activity in Vietnam's banking system presents significant challenges for the involved parties This research examines the current state of M&A in the Vietnamese banking sector, highlighting both achievements and weaknesses while offering recommendations for improvement Despite the complexities surrounding these activities, domestic banks must navigate various obstacles to mitigate potential issues However, the author acknowledges limitations due to insufficient statistical data and a narrow scope, hindering a deeper exploration of the challenges associated with M&A in the banking system Consequently, further research is recommended to address the weaknesses and propose solutions for M&A activities in the banking sector, providing readers with a clearer understanding of the current landscape and suggestions for future development.
CONCLUSION
Vietnam's robust potential, characterized by its skilled human resources and favorable investment environment, positions the country for significant growth in mergers and acquisitions (M&A) Enterprises in this sector are poised to enhance their operational systems and expand internationally To support this growth, the author proposes a comprehensive set of strategic solutions and clear directions at both micro and macro levels, aimed at optimizing the banking sector's development in Vietnam These solutions are applicable not only to banking M&A but also to various other industries, fostering overall economic advancement.
M&A activity is crucial for the market economy, including Vietnam, where successful deals benefit buyers, sellers, consumers, and the government While some transactions can have negative repercussions, M&A remains a global trend, particularly in financially dominant sectors Vietnamese commercial banks should embrace this trend by enhancing their understanding of M&A, recognizing its advantages and disadvantages, and adopting a proactive approach This study aims to analyze the current state of M&A within Vietnam's banking system to identify achievements, weaknesses, and potential solutions for further growth and development.
The theoretical background of the study is presented in the second chapter, in which the author gives the definition, then distinguishes between two terms
This chapter explores the concepts of "merger" and "acquisition," detailing the classification, motives, and processes involved in M&A transactions Additionally, it reviews the historical context of mergers and acquisitions worldwide, highlighting several significant transactions.
The third chapter provides an in-depth analysis of M&A activity within Vietnam's banking sector, offering valuable insights into the current state of mergers and acquisitions in the country's banking system The author evaluates various conducted M&A transactions, highlighting both their successes and shortcomings.
The fourth chapter presents key recommendations for enhancing M&A transaction outcomes in Vietnam The government should prioritize the completion of the legal framework for M&A, establish a dedicated management agency to oversee transactions, improve transparency and information dissemination, support M&A consulting firms, and invest in training human resources for the M&A market Meanwhile, domestic banks are encouraged to formulate a clear and effective M&A strategy, conduct thorough evaluations prior to deals, and focus on long-term human resource development.
In summary, Vietnamese commercial banks need to approach the M&A process with caution and strategic insight, leveraging their own resources as well as the expertise of legal and consulting firms to secure the intended benefits and avoid the risks of costly failures or potential bankruptcy.
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5 Henrikke Haaland, “The New Energy Game Changer” Mergers and Acquisition Strategies in the Oil and Gas Industry
6 Yana Ponomarova, M&A: Divided we stand, united we fall? Case of emerging European