Situation of mergers and acquisitions in the banking sector in vietnam in the period 2015 2023

CURRENT SITUATION OF MERGERS AND ACQUISITIONS IN THE BANKING SECTOR IN VIETNAM IN THE PERIOD 2015-2023.... Situation of mergers and acquisitions in banking sector in Vietnam in the perio

BANKING ACADEMY FINANCE FACULTY

GRADUATION THESIS

SITUATION OF MERGERS AND ACQUISITIONS IN THE BANKING

SECTOR IN VIETNAM IN THE PERIOD 2015-2023

Student name: Nguyen Thi Ha Class : K23CLC- TCB Course : 2020 - 2024 Student ID : 23A4010186 Advisor : Dr Dao Hong Nhung

Special thanks to my colleagues and friends for their constant support and for sharing their knowledge and experience

I would also like to extend my gratitude to my family, whose unwavering support and understanding have been my source of strength throughout this journey

Finally, I thank all the individuals and organizations who contributed data, resources, and assistance that made this thesis possible

DECLARATION

I hereby declare that this thesis “Situation of mergers and acquisitions in the banking sector in Vietnam in the period 2015-2023” is my personal research and is guided by Dr Dao Hong Nhung The content and results researched in this topic are completely honest, the data and materials used in the article have clear origins I take responsibility for the truthfulness of the content in my thesis

Student

Nguyen Thi Ha

TABLE OF CONTENTS

ACKNOWLEDGEMENTS i

DECLARATION ii

TABLE OF CONTENTS iii

LIST OF ABBREVIATIONS vii

LIST OF TABLES AND FIGURES viii

1 The urgency of the research 1

2 Literature review 2

3 Research gaps 4

4 Research objectives 4

5 Scope of the research 5

6 Research Methodologies 5

7 Research contribution 6

8 Research structure 7

CHAPTER 1 THEORETICAL BACKGROUND ON MERGERS AND ACQUISITIONS 7

1.1 Concepts, Objectives, Characteristics and Classification of mergers and acquisitions 7

1.1.1 Concepts 7

1.1.2 Objectives 8

1.1.3 Characteristics 9

1.1.4 Classification 10

1.2 Methods of mergers and acquisitions 11

1.2.1 Friendly takeover 11

1.2.2 Hostile takeover 11

1.2.2.1 Bear hug 11

1.2.2.2 Proxy contest (Proxy fight) 12

1.2.2.3 Tender offer 13

1.3 Process of mergers and acquisitions 13

1.3.1 Develop an acquisition strategy 14

1.3.2 Set a search criteria 15

1.3.3 Search for potential acquisition targets 15

1.3.4 Contact target companies 15

1.3.5 Perform valuation analysis 15

1.3.6 Negotiations 16

1.3.7 M&A due diligence 16

1.3.8 Purchase and sale contract 16

1.3.9 Financing strategy for the acquisition 16

1.3.10 Integration 16

1.4 Evaluation of mergers and acquisitions 17

1.4.1 Discounted cash flow (DCF) method 17

1.4.1.1 FCFE method 18

1.4.1.2 FCFF method 18

1.4.2 Comparables method 19

1.4.2.1 Comparable company analysis 19

1.4.2.2 Comparable transaction analysis 19

1.5 Factors affecting mergers and acquisitions in banking 20

1.5.1 Objective factors 20

1.5.1.1 Legal environment 20

1.5.1.2 Economic environment 20

1.5.1.3 Cultural and social environment 21

1.5.1.4 Technology environment 22

1.5.1.5 Integration 22

1.5.2 Subjective factors 23

1.5.2.1 Development strategies 23

1.5.2.2 Competitive capability 23

1.5.2.3 Non-performing loans 24

CONCLUSION OF CHAPTER 1 25

CHAPTER 2 CURRENT SITUATION OF MERGERS AND ACQUISITIONS IN

THE BANKING SECTOR IN VIETNAM IN THE PERIOD 2015-2023 26

2.1 Context of the banking sector in Vietnam in the period 2015-2023 26

2.1.1 Number of banks 26

2.1.2 Capital scale 27

2.1.3 Asset scale 29

2.1.4 Profitability 30

2.1.5 Liquidity situation 31

2.1.6 Non-performing Loan (NPL) situation 32

2.2 Situation of mergers and acquisitions in banking sector in Vietnam in the period 2015-2023 34

2.2.1 Motivation for carrying out mergers and acquisitions in the banking sector in Vietnam in the period 2015-2023 34

2.2.1.1 Integration demand 34

2.2.1.2 Development potential 34

2.2.2 Methods of mergers and acquisitions in the banking sector in Vietnam in the period 2015-2023 35

2.2.3 Process of mergers and acquisitions in the banking sector in Vietnam in the period 2015-2023 36

2.3 Case study 37

2.3.1 M&A deal between VPBank and financial company SMBC 37

2.3.1.1 Introduction 37

2.3.1.2 Value and Motivation 38

2.3.1.3 Progression 39

2.3.1.4 Post-deal result 39

2.3.2 M&A deal between BIDV and KEB Hana Bank 40

2.3.2.1 Introduction 40

2.3.2.2 Value and Motivation 41

2.3.2.3 Progression 42

2.3.2.4 Post-deal result 43

2.3.3 Lessons and experiences learned from deals 43

2.4 Evaluation of mergers and acquisitions in the banking sector in Vietnam in the

period 2015-2023 44

2.4.1 Achievements 44

2.4.2 Limited problems 47

2.5 Summary of mergers and acquisitions in the banking sector in Vietnam in the period 2015-2023 50

CONCLUSION OF CHAPTER 2 51

CHAPTER 3 SOLUTIONS AND RECOMMENDATIONS 52

3.1 Business context and development strategies on mergers and acquisitions in the banking sector in Vietnam 52

3.2 Solutions 54

3.2.1 Banks need to continue promoting mergers and acquisitions 54

3.2.2 Banks need to diversify mergers and acquisitions methods 55

3.2.3 Banks need to plan and build a clear and careful M&A process 56

3.2.4 Banks need to manage well after mergers and acquisitions 58

3.3 Recommendations 58

3.3.1 Propose to the Government 58

3.3.1.1 The Government continues to maintain the stability of the macro environment 58

3.3.1.2 Complete the legal framework for bank mergers and acquisitions 59

3.3.1.3 Control and develop official information channels 59

3.3.2 Recommendation to the State Bank 60

3.3.2.1 Continue to promote the process of restructuring the commercial banking system 60

3.3.2.2 Strengthen banking inspection and supervision 61

3.3.2.3 Control and develop information channels of the State Bank 61

CONCLUSION OF CHAPTER 3 63

CONCLUSION 64

REFERENCES 65

LIST OF ABBREVIATIONS

M&A Mergers and Acquisitions

DCF Discounted Cash Flow

FCFE Free Cash Flow to Equity

FCFF Free Cash Flow to the Firm

EBITDA earnings before interest, taxes, depreciation, and amortization

ROA Return on Assets

ROE Return on Equity

NPL Non-performing Loan

CPTPP the Comprehensive and Progressive Agreement for

Trans-Pacific Partnership

EVFTA the European-Vietnam Free Trade Agreement

SMFG Sumitomo Mitsui Financial Group

CIC The Credit Information Center

LIST OF TABLES AND FIGURES

Table 2.1 Number of commercial banks in Vietnam from 2015 to

Table 2.2 Non-performing Loan ratio of the whole banking

system in Vietnam in the period 2015-2023 32

Table 2.3 Some bank mergers and acquisitions deal in the period

Figure 1.1 Merger and Acquisition process 13

Figure 2.1 Top 10 listed banks with the strongest capital increases

Figure 2.2 Top 10 banks with the largest charter capital as of

Figure 2.3 Top 10 banks with the largest total assets in 2023 (unit:

Chart 2.1 ROA, ROE ratio of the whole banking system in

INTRODUCTION

1 The urgency of the research

“Mergers and Acquisitions (M&A) is a generally used term to describe the process of combining companies through various types of transactions The most popular one is an acquisition, where one company buys another and transfers ownership” (Kison Patel, 2022) Besides, this activity also helps businesses reduce investing costs, gather all their strengths, and take advantage of the strengths of participants to gain competitive advantage over other competitors

Known as a solution for businesses to reorganize their apparatus, as well as create unity and gather human resources, advanced scientific technology, and financial resources, M&A is highly appreciated in all industries in general and the banking industry in particular For the banking and finance sector, M&A is quite a popular trend that helps the commercial banking system be reformed and upgraded

in terms of economic competitiveness Besides increasing the competitive advantage of commercial banks, M&A also brings greater results, even saving some commercial banks from the brink of bankruptcy

In Vietnam from 2015 to 2023, this is the period when our country is integrating with the world economy and technology, so this is a very difficult period for all industries, especially the financial and banking industry With the difficulties and challenges, competition between commercial banks is increasingly fierce, so mergers and acquisitions are completely inevitable and appropriate In the period 2015-2023, Vietnam's banking industry had many changes to adapt to the development of science and technology, while keeping up with the trend of digital transformation This is the period when the flexible application of smart devices and applications in transactions between banks and customers appeared, including the development of online banking services These changes and improvements have helped both banks and customers save costs, time, and effort in accessing and

exchanging information In addition, M&A plays a huge role in the banking industry because the more a bank meets legal requirements, capital scale, and capital safety, the more management and strategic partner requirements become required M&A helps banks attract more capital and talented human resources, at the same time develop information technology systems, expand business activities, increase market share, gain advantages of scale, and increase operating efficiency, thereby increasing profits Recognizing the necessity and urgency of the problem, I chose the topic "The current status of mergers and acquisitions in the banking sector

in Vietnam in the period 2015-2023" as my research topic

2 Literature review

M&A has appeared since the late 19th and early 20th centuries and appeared in Vietnam for the first time in 1997 Up to now, there has been much research working on mergers and acquisitions activities in general and mergers and acquisitions in the banking sector in particular Some typical studies on this topic in Vietnam include:

"Bank mergers and acquisitions aim to improve the competitiveness of Vietnamese commercial banks" (Luong Thi Thanh Thuy, 2010) has analyze and research bank M&A activities in the world and the region and evaluate the practice of this activity

in Vietnam to prove that M&A activities are necessary and to improve the competitiveness of commercial banks in Vietnam From there, the author offered some solutions for this activity In this study, the author mainly focused on analyzing the competitiveness of Vietnamese commercial banks, reviewing bank mergers and acquisitions activities in Vietnam from 2009 onwards The limitation

of the research is that the author has not analyzed and evaluated the specific deals that have been conducted to draw out the successes and limitations of the deals that have been carried out The author mainly evaluates bank M&A activities in a general way without clearly analyzing what impact those M&A activities have had

“Development of mergers and acquisitions activities in Vietnam's banking and finance sector” (Nguyen Thi Dieu Chi, 2013) focused on clarifying the factors affecting M&A activities in the banking and finance sector, including both factors outside and inside the enterprise In this study, the author used the Probit model through financial data of 22 banking and financial institutions in Vietnam with the dependent variable as the probability that the business will perform M&A and 7 independent variables: equity, revenue, assets, profits, profits/equity, bad debt, and total outstanding debt Through research and evaluation of M&A deals in the banking sector in Vietnam from 2007 to 2013, the study has shown the positive impact of M&A activities on the business results of businesses after this activity The limitation of the research is that the research period is no longer appropriate up

to the present time due to not being able to update trends and changes in the market and the economy

"Business performance of Vietnamese commercial banks after M&A" (Nguyen Quang Minh, 2016) In this study, the author used a quantitative model to evaluate the business performance of Vietnamese commercial banks after M&A In the quantitative model, the author uses the DEA method and the Malmquist index to determine the change in aggregate performance at two different times t and t+1 of two commercial banks that carry out M&A: SHB and HD Bank, the thesis has shown that after implementing M&A activities, commercial banks suffer a large decrease in business performance, specifically a decrease in stock prices The researcher also proposed a number of solutions to improve the business performance of commercial banks after M&A However, the limitation of the research is that it only focuses on evaluating efficiency through 2 banks SHB and

HD bank without considering other commercial banks Besides, the research period

is from 2014 onwards and it is not new compared to the present time, in 2023

“Mergers and acquisitions activities of commercial banks in Vietnam” (Vuong Thi Minh Duc, 2018) The author used qualitative methods to research aspects of

commercial bank mergers and acquisitions activities and present the current situation of this activity in the period from 2011 to 2016 From there, the author has provided solutions and recommendations for commercial bank M&A activities in Vietnam until 2025 However, the limitation of this study is the research period from 2011 to 2016 From 2016 to now, Vietnam's economy in general and the banking sector in particular have gone through a lot of changes, especially during the period with the emergence of the covid 19 pandemic (2020), so the current situation of Mergers and Acquisition in the banking sector in Vietnam have so far had specific fluctuations that have not been mentioned

Research on mergers and acquisitions activities of banks in Vietnam has made important contributions in terms of both theoretical and practical basis for M&A activities in the banking sector in our country

Most of the research in Vietnam delves into a specific aspect of M&A activities, some works mention mergers and acquisitions of commercial banks Research period is until 2016

3 Research gaps

Research gaps for student to continue to clarify are:

+ Theoretically:

Research clearly on the difficulties and advantages of mergers and acquisitions

in the banking sector in the period before, during and after the Covid-19 period + Practically:

Refers to all banking M&A deals that took place during the research period Status of M&A activities in the banking sector in Vietnam from 2015-2023 and presents several outstanding deals, thereby providing appropriate recommendations

+ Systematize the rationale for mergers and acquisitions activities in the banking sector, giving personal views on this activity

+ Assessing the status of banking M&A activities in Vietnam in the period

2015-2023, especially with fluctuations during the Covid 19 epidemic outbreak

+ Propose recommendations and implications for the banking sector in Vietnam to

2030

5 Scope of the research

About space: Bank mergers and acquisitions activities in Vietnam

About time: Period 2015-2023

6 Research Methodologies

With the research problem on the status of mergers and acquisitions in the banking sector in Vietnam in the period 2015-2023, I use qualitative research methods, specifically including the following methods:

+ Dialectical materialist method and historical materialist method of Leninism: view bank M&A activity as a phenomenon in a state of constant development and consider it in relation to things and current events other subjects in the economy, studying the most common and general rules

Marxism-+ Logical reasoning method: Research basic theoretical issues about banking M&A activities, evaluate the current situation and make suggestions and recommendations

+ Methods of analyzing and synthesizing information: analyzing, interpreting data, and analyzing actual causes The collected data will be synthesized in the form of tables and charts, specifically by stages and compared between those stages

+ Statistical and descriptive method: using collected data to describe the situation

of banking M&A activities in Vietnam

+ Case study method: Using several specific deals to clearly analyze the situation

of bank mergers and acquisitions and the advantages, disadvantages, and lessons for bank M&A activities in Vietnam

7 Research contribution

In term of theory:

+ Systematize theoretical issues and give personal opinions on mergers and acquisitions activities in the banking sector (concepts, objectives, characteristics, classification, methods, process, and factors affecting)

+ Research the practice of mergers and acquisitions in the banking industry in Vietnam and clarify a few specific deals, thereby drawing strategies for M&A activities in Vietnam

In terms of practice:

+ Analyze the situation of M&A in the banking sector in Vietnam on the following contents: deals, methods and impacts of deals on the banking industry and the economy in general in the period 2015-2023

+ Evaluate the results, remaining problems and causes of those problems based on the personal perspective of the student

+ Propose solutions and give recommendations for M&A activities in the banking sector in Vietnam

Research on banking M&A activities in Vietnam has made important contributions to the theoretical and practical basis for M&A activities in the banking sector and the development of this activity in the future Thanks to research on the current situation of mergers and acquisitions activities in the banking sector in Vietnam in the period 2015 - 2023, student can systematize the theoretical basis of mergers and acquisitions activities and give personal opinions on mergers and acquisitions activities of commercial banks Besides, student can evaluate the current situation of banking M&A activities in Vietnam

impact of the Covid 19 pandemic, and providing assessments of student about banking M&A activities in Vietnam during this period

8 Research structure

In addition to the introduction, conclusion, references, and appendices, the research is structured into 3 chapters:

Chapter 1: Theoretical background on mergers and acquisitions

Chapter 2: Current situation of mergers and acquisitions in the banking sector in Vietnam in the period 2015-2023

Chapter 3: Solutions and recommendations

CHAPTER 1 THEORETICAL BACKGROUND ON MERGERS AND

a company marry another one or take it over

According to Andrew J Sherman and Milledge A Hart (2006) in Acquisitions and Mergers from A to Z: Acquisition: The purchase of an asset such as a factory, a division of a company, or the entire company Merger: A combination of two or more companies such that the assets and capital of the selling company will belong to the buying company After this acquisition,

although there will be certain changes on the part of the buying company, this company will keep the same name

According to Investopedia, Mergers and Acquisitions (M&A) is a general term that describes the consolidation of companies or assets through various types of financial transactions, including mergers, acquisitions, consolidations, tender offers, purchase of assets, and management acquisitions Mergers: occurs when two companies (usually companies of the same size) agree to establish a new company without maintaining the ownership and operations of the component companies The securities of the component companies will be abolished, and the new company will issue replacement securities Acquisitions: are activities through which companies seek economic profits thanks to scale, efficiency, and the ability to dominate the market Different from in a merger, the acquiring company buys the target company, with no change in stock or merger into a new company

Therefore, Acquisitions can be understood as one business purchasing another business and they will become a unified business Acquisitions can exist

in two forms: stocks acquisitions and assets acquisitions

Mergers are understood as that two or more companies combine by transferring all assets, rights, obligations, and legal interests to create a new company and can terminate the existence of both entities (combination) or terminate the existence of the merged entity (merger)

1.1.2 Objectives

M&A brings many benefits to both parties involved, so there are also some specific objectives that investors aim for, which makes them participate in

an M&A deal

For the merging entity/ acquiring entity, when they take part in an M&A deal, they can reduce risk and expenses in finding customers and expand consuming markets Besides, corporations can increase financial resources, human resources, relationships, customer files, distribution systems, Reducing competitors, gaining advantage and position in the market thanks to business scale are also important objectives making them participate in M&A activities

For the merged party/ acquired entity, they also can gain specific objectives For example, they can reduce competitive pressure in the market, reduce the financial burden when businesses are facing the risk of low liquidity

or bankruptcy and have a new environment to develop human resources, strategies,

1.1.3 Characteristics

Firstly, the form of the transactions: M&A transactions are divided into 2

forms: Stock purchase and Asset purchase

Stock purchase means that Acquiring business (“Acquirer”) buys the stock of the acquired business (“Target”) and takes the target, regarding both assets and liabilities Most contracts the target has – such as leases and permits – transfer automatically to the new owner Therefore, it’s often more straightforward to go with a stock purchase than an asset purchase

Assets purchase means that the acquirer buys the assets of the target business and pays the target business directly After making an asset sale, the legal owner of the entity will still be the seller while the purchaser buys individual assets of the company such as equipment, licenses, goodwill, customer lists, and inventory

Secondly, method of payment: There are three methods of payment: cash,

securities and combination of cash and securities

The acquiring business will pay in cash when it strongly believes that the value

of the acquired business’s shares will be worth more after synergies are realized Cash offering may be cash from existing acquirer balances or from a debt issue

The acquiring firm will choose securities offering when it does not strongly believe in the M&A After M&A, target shareholders receive shares of common stock, preferred stock, or debt of the acquirer

Depending on the different conditions, objectives, situations of both acquirer and target, each M&A deal will use different methods of payment

Thirdly, Attitude of management: The classification of a merger as

friendly or hostile is from the perspective of the board of directors of the target company Between two kinds of attitude of management: hostile and friendly, there are some differences A friendly merger is one where the board negotiates and accepts an offer A hostile merger is one where the board of the target firm attempts to prevent the merger offer from being successful

1.1.4 Classification

M&A is classified by the relatedness of business activities of the parties

to the combination: They are Horizontal M&A, Vertical M&A, and Conglomerate M&A

Horizontal M&A is when one company merges with or acquires another company that is in the same line of business, often competitors

Vertical M&A is when one company merges with or acquires another company that is in the same line of production (different positions on the supply chain) For example, supplier and customer

Conglomerate M&A is when the acquirer and target are in unrelated industries or engaged in unrelated activities For example, a company involved

in the real estate business acquires an entertainment company

1.2 Methods of mergers and acquisitions

The mergers and acquisitions methods are all the plans, methods, and strategies that a business decides to implement to conduct an M&A deal Mergers and acquisitions methods include Friendly takeover and Hostile takeover For each different type of business, there will be differences in choosing methods

1.2.1 Friendly takeover

Friendly takeover is a situation in which a target company’s management and board of directors agree to a merger or acquisition by another company The potential acquirer initiates an informal dialogue with the target’s top management and then the acquirer and target reach an agreement on the key issues The acquirer agrees not to make any further investments in target's stock for a specific period, then compels the acquirer to pursue the acquisition on friendly terms

A friendly takeover leads to a better value deal, all parties work towards a common goal that is best for all parties involved, the target company is not negatively impacted by using tactics to fight off a bid, and the design of a more unified company post-takeover

1.2.2 Hostile takeover

Hostile takeover is an attempt to take over a company without the approval of the company’s board of directors Besides, this method is more problematic and expensive than a friendly takeover Hostile takeover includes Bear hug, Proxy contest, and Tender offer

1.2.2.1 Bear hug

The bear hug is an offer to buy the target’s shares at a substantial premium to its current share price First, the acquirer will approach the target company's board members and formally discuss the acquisition At the same

time, information about the deal will also be sent to other shareholders The disclosure of information is intended to incite other shareholders to put pressure

on the target company's board of directors The important factor of the “bear hug” is that when the buyer publicly announces its intention to acquire, they will deliberately highlight the generous offer price to attract consensus from most shareholders who are not in the administrative council And since the board of directors is obliged to act in the best interests of shareholders, they will not be able to refuse this proposal without providing satisfactory reasons

The bear hug method is used when the acquirer believes that the target is undervalued Thanks to using this method, shareholders gain a significant benefit from the premium between the bid price and the market price of the target company's shares Information about bear hugs also has a positive impact

on the target company's stock price on the stock market For the buyer/ acquirer, bear hug not only helps increase negotiating advantage but also helps to preempt potential competitors who are also targeting the target company

1.2.2.2 Proxy contest (Proxy fight)

A proxy contest is in which a group of shareholders are persuaded to join forces and gather enough shareholder proxies to win a corporate vote In M&A, this term means the acquirer will persuade existing shareholders to vote out company management so that the company will be easier to take over

The bidder may put up a proposal to replace the board and attempt to call

a special shareholders’ meeting Before the meeting, the bidder opens an aggressive public relations campaign, with direct solicitations sent to shareholders to support their proposals Once shareholders receive the proxies, they may choose to sign and send them directly to a designated collection point such as a brokerage house or a bank

Proxy contest method is often used in the case that participating parties are competitors of each other

1.2.2.3 Tender offer

The tender offer is a public and open offer by a prospective acquirer to all stockholders of a publicly traded corporation to tender their stock for sale at a specified price during a specified time The price offered is usually at a premium

to the market price and is often contingent upon a minimum or a maximum number of shares sold Once the shareholders agree to the proposed price, they will sell their shares to the acquirer to receive a proportionately higher amount

of cash than when they sell their stocks in the market After holding shares, the acquirer has the right to restructure the target and change management according to its strategy

The tender offer is often used in hostile deals by competitors The target

is usually weaker businesses, however, there are also several deals where the target is larger businesses, which are acquired by small businesses based on the mobilization and support of a third party

1.3 Process of mergers and acquisitions

To carry out a merger and acquisition deal, businesses need to go through the following 10 phases:

Figure 1.1 Mergers and Acquisition process

Source: compiled by the author

1.3.1 Develop an acquisition strategy

At this phase, businesses need to develop a good strategy that involves clearly defining their expectations and business goals when deciding to acquire

a target First, businesses need to rely on external analysis and internal analysis

to answer the question "where and how to compete" and initially create a SWOT analysis Then define a mission statement, the acquirer needs to summarize the external analysis Then, in the step of setting objectives, the company can use quantitative measures of financial and nonfinancial performance After that, they can choose a business strategy and come up with implementation strategy and functional strategy Finally, for strategic controls, businesses monitor actual performance, implement incentive systems, and take corrective actions as necessary

1.3.2 Set a search criteria

Acquirer uses some key criteria for identifying potential targets The first step is establishing a small number of primary selection criteria, they are the industry and the size of the transaction After that, the acquirer needs to shorten the initial list by using secondary selection criteria such as market segment, product line, profitability, degree of leverage, market share, cultural compatibility

1.3.3 Search for potential acquisition targets

Among many businesses on the market, businesses need to rely on the important criteria given in the former step to select target businesses which are suitable for their acquisition purposes

1.3.4 Contact target companies

The acquirer starts contacting one or more companies that meet its search criteria and appear to offer good value; the purpose of initial conversations is to get more information and to see how amenable to a merger or acquisition the target company is

How initial contact is made depends on: the size of the company, whether the potential acquirer has direct contact with the target, whether the target is publicly or privately held, and the acquirer’s time frame for completing a transaction

1.3.5 Perform valuation analysis

After the acquirer contacts the target, if the conversation goes well, the target will request substantial related documents so that they can evaluate and research more carefully about the buyer's acquisition purpose Then they can make their next decisions

1.3.6 Negotiations

After producing several valuation models of the target company, the acquirer should have sufficient information to enable it to construct a reasonable offer; Once the initial offer has been presented, the two companies can negotiate terms in more detail The negotiation phase consists of four iterative activities that may begin at different times but tend to overlap: conducting due diligence, refining valuation, deal structuring, and developing the financing plan

1.3.7 M&A due diligence

Due diligence is an exhaustive process that begins when the offer has been accepted; due diligence aims to confirm or correct the acquirer’s assessment of the value of the target company by conducting a detailed examination and analysis of every aspect of the target company’s operations – its financial metrics, assets and liabilities, customers, human resources, etc

1.3.8 Purchase and sale contract

After completing the appraisal process without any concerns, the two parties will establish a purchase and sale contract The parties make a decision about the type of contract, integration planning also involves addressing human resource, customer, and supplier issues that overlap the change of ownership

1.3.9 Financing strategy for the acquisition

Although the acquirer often explores the financing options for the deal earlier than the target, the final decision of details of financing strategies comes after the purchase and sale contract has been signed

1.3.10 Integration

After two parties gain their necessary approvals, they will assign customer and vendor contracts and then complete the acquisition/ merger

agreement The management teams of the target and acquirer work together on the process of merging the two companies

1.4 Evaluation of mergers and acquisitions

The evaluation of mergers and acquisitions is very important Through assessment before, during and after completing the deal, businessmen and businesses can come up with appropriate options, lessons, and experiences for future projects

When trading, the acquirer always wants to buy the target at the lowest price while the target wants to sell at the highest price, so to come to a reasonable price for both parties, the evaluation must be based on a number of criteria and suitable methods There are two major valuation methods that companies can use to evaluate the target: The DCF method and the comparables method

1.4.1 Discounted cash flow (DCF) method

DCF (Discounted Cash Flow) is an effective method used popularly in estimating the value of a certain investment based on the future cash flow of that investment In M&A, it’s used to calculate the target’s value based on the cash flow of it in the future There are two main methods, the Free Cash Flow to Equity (FCFE) method and Free Cash Flow to the Firm (FCFF) method

The general formula to calculate discounted cash flow is as follows:

r: Discount rate – when valuing a certain business, the discount rate will be the WACC (Weighted Average Cost of Capital) of that business

n: Number of periods – each cash flow will be associated with a period of time, usually a month, quarter, or year, etc

1.4.1.1 FCFE method

FCFE (Free Cash Flow to Equity) is the cash flow for the period owned

by shareholders after considering capital expenditures for asset investments and debt principal payments

The formula:

FCFE = - (Net Income + Depreciation and Amortization – Δworking Capital) – Gross Capital Expenditures + (New Preferred Equity Issues – Preferred Dividends + New Debt Issues – Principal Repayments)

If FCFE < 0, it means the business is spending more money than it is generating from its operations

If FCFE >0, it means the business is generating more money than it is spending This is a good sign for the business, because it shows that the business is operating efficiently, and it can generate profits

1.4.1.2 FCFF method

FCFF – Free Cash Flow to the Firm, refers to the cash flow that a business generates and is available for all capital providers, including creditors, preferred shareholders, common shareholders, investors, convertible bonds, and many other providers This is also called unencumbered free cash flow, which represents the amount of excess cash a business has without debt

issue may result in raising additional capital (debt or equity) or adjusting investment policy to reduce investment demands

If FCFF >0, Enterprises have excess cash flow after meeting investment demands This issue allows businesses to adjust their financial policies, including reducing debt or increasing dividends, buying back shares, or making new investments

1.4.2 Comparables method

1.4.2.1 Comparable company analysis

Comparable company analysis involves assessing companies by comparing them using similar metrics to ascertain their enterprise value

To apply this method, businesses first need to select comparable companies These publicly traded companies are similar to the subject company, and they are in the same or similar industry Next, they will calculate relative value measures Things to pay special attention to at this stage are enterprise value multiples and price multiples The third step is applying metrics to target, judgment to choose appropriate metrics is essential Finally, estimate the takeover price

The most common valuation measures used in comparable company analysis are enterprise value to sales (EV/S), price to earnings (P/E), price to book (P/B), and price to sales (P/S)

1.4.2.2 Comparable transaction analysis

Comparable transactions analysis is a method that is frequently employed

in mergers and acquisitions (M&A) to determine a firm’s value This method involves seeking out similar past transactions where the target company for acquisition shares similarities either in business model or size To assess a business's value using this approach, one compares a similar multiple of the business's earnings with transaction multiples

First, companies need to collect information on recent takeover transactions of comparable companies Then, calculate multiples for comparable companies, and estimate takeover value based on multiples

The most common valuation measures used in comparable transactions analysis are Price to earnings (P/E), Enterprise value to EBITDA (EV/EBITDA), Enterprise value to SDI (EV/SDI), Enterprise value to Revenue (EV/Revenue), Price to book (P/B)

1.5 Factors affecting mergers and acquisitions in banking

1.5.1 Objective factors

1.5.1.1 Legal environment

To be successful and effective, M&A activities need a clear, unified, and complete legal environment It will create favorable conditions to establish related issues such as the situation of the buyer and seller, and legal consequences after completing the transaction Especially for the banking industry, the legal environment is especially indispensable due to the specific nature of the industry: the products of this industry are mainly currency and valuable papers Certain significant aspects within the legal framework concerning M&A endeavors encompass business valuation, financial problem resolution, shares, stocks, taxes, fees, among others These aspects are crucial for banks to thoroughly understand to execute M&A activities efficiently Conversely, lacking a firm grasp of these regulations and laws may lead to numerous challenges and obstacles in the process of mergers and acquisitions

1.5.1.2 Economic environment

The economy always plays an extremely important role that directly affects the performance of business sectors, especially the banking sector When the economy is in recession, the banking industry faces many difficulties and

changes This causes banks' business operations to stagnate Therefore, banks will have to invest more in providing solutions and making new investment decisions Not only does it affect the business results of banks in the system, but the economic recession also causes other activities to be negatively affected, including mergers and acquisitions Therefore, only when factors in the economy such as interest rates, inflation, exchange rates, the government's economic development policies, and other measurement indicators of the economy are stable, the business activities have a good environment to operate and develop effectively

1.5.1.3 Cultural and social environment

The cultural and social environment is also an important factor contributing to the strong development of M&A activities, especially in the banking sector The cultural and social environment is formed from different factors such as educational level, level of human awareness, lifestyle, understanding of cultural issues in organizations and in a country Through researching on the cultural and social environment, businesses will easily be able to develop policies, regulations and procedures in operations and thereby come up with appropriate organizational structures with cultural characteristics

of different regions In M&A in the banking industry, banks will have a great advantage to compete and carry out deals when they clearly understand cultural environmental factors On the contrary, if businesses do not have a clear knowledge of the regulations, they will have difficulty in purchasing, merging, and integrating with the cultural and social environment, thus their business activities will not be able to achieve good results Therefore, a deep understanding of culture and society will help the bank's leadership team come

up with appropriate strategies and plans that create an advantageous foundation for the bank to survive and develop

1.5.1.4 Technology environment

In the current era of technology 4.0, technology is an extremely important and indispensable factor for all fields and industries, especially for the banking sector Currently, banks are relying heavily on electronic technology to manage, promote and provide services to customers Therefore, understanding and taking advantage of the technological environment to operate a bank will bring not only good business results but also positive feedback from customers, thereby improving the bank's business process After a merger or acquisition, the new bank will encounter many difficulties in integrating the two systems, and when the business network expands, management is also a big problem affecting business results Therefore, investing in technology is always a wise choice to contribute to strengthening the operating apparatus as well as scientific management processes

1.5.1.5 Integration

World economic integration has become a trend and takes place in many fields This is the process in which the economies and markets of different countries share, learn, and support each other to develop the regional and global economy This is also the period when the competitive environment between countries becomes fiercer than ever In the field of finance and banking, banks also need to face not only domestic banks but also foreign banks, so the bank merger and acquisition plan is one of the methods The project can help weak banks solve this problem To fully take advantage of the strengths of economic integration, banks need to research carefully, perceive, participate in the integration process, and thereby find opportunities for themselves Through banking M&A activities, banks have the opportunity to access high technology, experience and management qualifications from other organizations globally, this is a good foundation to help them go far in business

1.5.2 Subjective factors

1.5.2.1 Development strategies

In mergers and acquisitions, the primary and fundamental element remains the bank's development strategy This encompasses the long-term business objectives and aims of banks, including their goals, strategic scope, competitive advantages, and core operational activities Recognizing the necessity for capital, technology, managerial expertise, and partnerships throughout the bank's operations, M&A is regarded as a potent strategic instrument for robust bank growth A well-defined M&A objective simplifies implementation, reduces risks, and heightens the likelihood of deal success

1.5.2.2 Competitive capability

Each bank with different advantages and strengths will have different competitiveness Competitive pressure comes not only from domestic banks but also from other banks in the world market Therefore, the need for mergers and acquisitions by banks, especially small banks, is increasing Based on the competitiveness of each bank, the board of directors will choose the appropriate M&A plan When considering the competitiveness of a bank, there are several criteria to pay attention to The first is financial capacity A bank with strong competitiveness is reflected in its abundant financial capacity This resource is the capital and the bank's ability to pay through its operations Next is operational capacity, expressed through the bank's operating results It includes the ability to mobilize capital, investment activities, and product development capabilities Another criterion that shows a bank's competitiveness is technological ability Banks that have advanced technology will have a competitive advantage over banks that only use traditional methods Besides equipment and technology factors, human resources play an important role in improving the bank's competitiveness Therefore, the management level and

human resources system should also be focused, to have a dedicated team that helps to give the bank more advantages in the market

1.5.2.3 Non-performing loans

Non-performing debts refer to subpar debts that are past due and raise doubts regarding the creditor's ability to recoup the capital In the banking sector, bad debts encompass not only delinquent loans that are typically unrecoverable according to the contractual terms but also debts that, while not overdue, pose potential risks of non-recovery, including both principal and interest owed to the bank The issue of bad debt varies among banks, contributing to the operational challenges they encounter, sometimes even leading to bankruptcy Through M&A activities, banks can pursue opportunities

to expand, streamline costs, leverage customer bases and human resources, and enhance their capacity to address existing bad debts while curbing the emergence of new ones

CONCLUSION OF CHAPTER 1

Nowadays, the banking sector in Vietnam is facing numerous difficulties and challenges Particularly during the COVID-19 pandemic, the economy has been significantly affected, leading to adverse impacts on the banking industry

In Chapter 1 of the thesis, I explored fundamental issues regarding M&A activities in general and factors influencing M&A activities in the banking sector in particular It includes concepts of M&A activities, characteristics, classifications, merger and acquisition methods, the process of mergers and acquisitions, and evaluation methods for merger and acquisition activities

CHAPTER 2 CURRENT SITUATION OF MERGERS AND ACQUISITIONS

IN THE BANKING SECTOR IN VIETNAM IN THE PERIOD 2015-2023

2.1 Context of the banking sector in Vietnam in the period 2015-2023

2.1.1 Number of banks

From 2015 to 2023, the banking system in Vietnam was improved and developed increasingly According to statistics from the State Bank, banks in Vietnam have a diversity of ownership (state bank, joint stock commercial bank, joint-venture bank, 100% foreign capital bank), type of organization (commercial bank, development bank, Policy bank, foreign bank branches, 100% foreign capital bank) and sizes (large, medium, small) are well meeting the needs of financial products and services of entities in the economy

Table 2.1 Number of commercial banks in Vietnam from 2015 to 2023

100%

foreign

capital bank

Source: compiled by the author

(*) Including 3 joint stock commercial banks acquired by the State Bank for 0 VND (Construction Commercial One Member Limited Liability Bank, Global Petro Sole Member Limited Commercial Bank, Ocean Commercial One Member Limited Liability Bank)

(**) Excluding 3 joint stock commercial banks acquired by the State Bank for 0 VND (Construction Commercial One Member Limited Liability Bank, Global Petro Sole Member Limited Commercial Bank, Ocean Commercial One Member Limited Liability Bank)

In general, the commercial banking system in Vietnam from 2015 to

2023 is quite stable The number of joint stock commercial banks is always stable at 28, state-owned commercial banks remain at 4 banks (excluding 3 joint stock commercial banks that were acquired by the State Bank for 0 VND) In the period 2015-2017, there were fluctuations in the number of banks related to weak international factors: joint venture banks, foreign bank branches and banks with 100% foreign capital In 2016, Standard Chartered Bank Limited converted from a joint venture bank to a foreign bank branch, leading to a change in quantity between these two types It can be said that at present, the commercial banking system in Vietnam has been completed and stabilized, and is on the path of strong development, especially after the covid 19 pandemic in 2020

2.1.2 Capital scale

In terms of the capital scale of banks in Vietnam and banks around the world, the capital scale of domestic banks is still quite modest On the path of development, banks are still making efforts to increase their charter capital as

well as their scale of operations Specifically, on 14/11/2019, the Government issued Decree 86/2019/ND-CP regulating the legal capital levels of credit institutions and foreign bank branches It stipulates the legal capital levels for types of banks and credit institutions as follows: Commercial banks: 3,000 billion VND; Policy bank: 5,000 billion VND; Cooperative bank: 3,000 billion VND; Foreign bank branches: 15 million US dollars (USD) As of 31/12/2023, there are many banks with charter capital of over 1 billion USD This is a sign that demonstrates the continuous development and efforts of the banking sector

in Vietnam in recent years

Figure 2.1 Top 10 listed banks with the strongest capital increases in 2023

(unit: billion dong)

Source: Vietnamnet

Figure 2.2 Top 10 banks with the largest charter capital as of 31/12/2023

(unit: billion dong)

the scale of total assets of the commercial banking system has increased, in

which the total assets of the entire system of credit institutions increased by

14.5% compared to the beginning of the year, reaching 18,275,093 billion dong

Total assets of state-owned commercial banks increased by 19.03%, Social

Policy Bank increased by 15.77%, and joint venture banks increased by 8.67%

The scale of total assets of banks has also been different in recent years, in

which the leading banks in terms of total assets (as of 31/12/2023) include

BIDV, Vietcombank, and Vietinbank with total assets greater than 1 million

through two main indicators: net profit ratio on total assets (ROA) and net profit

ratio on equity (ROE) From 2015 to 2019, ROA and ROE remained on a steady

increase over the years, specifically ROA increased from 0.44 - 1.01, ROE

increased from 6.26 - 12.95 However, since the beginning of 2020, the Covid

19 epidemic appeared, resulting in negative impacts on the economy, especially