Why did Masan spend VND 3,600 billion to buy an additional 34% stake in Phuc Long?

August 25, 2022 - 15:42
Vietnam ranks 3rd in milk tea market size in Southeast Asia

According to Straitstimes, citing a report, Indonesia, Thailand, and Vietnam topped the list of countries that consume the most milk tea in Southeast Asia.

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Especially milk tea brought in revenue of USD1.6 billion for Indonesia and USD749 million for Thailand. In a year, the Vietnamese spent about USD362 million (equivalent to VND 8,400 billion) on milk tea, ranked third in milk tea market size in Southeast Asia.

In Vietnam, milk tea is one of the most popular drinks among young people, but the competition in this industry is quite fierce. In 2017, Tenren, the Taiwanese milk tea brand, was launched in Vietnam. However, only two years later, the brand announced its decommissioning. At the same time, several small milk tea shops and franchise stores also withdrew, and the market did not have the presence of many new names. However, contrary to many other milk tea brands in Vietnam, the Phuc Long F&B chain has grown enormously in revenue and the number of points of sale.

In August 2022, Masan Group, through its subsidiary The Sherpa, continued to spend more than VND 3,600 billion (equivalent to USD155 million) to buy another 34% of Phuc Long's shares, raising the ownership ratio in this F&B chain to 85%. After this deal, Phuc Long has a valuation of up to USD455 million. The agreement plays an integral part in the vision of serving 80% of Vietnamese consumer spending, and the F&B chain will be a strategic section of the POL ecosystem.

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In May 2021, Masan first poured USD15 million for a 20% stake in Phuc Long Heritage. At that time, this Vietnamese beverage brand's value was USD75 million. Masan continued to spend another USD 110 million to buy 31% shares of Phuc Long in January 2022, making Phuc Long a consolidated subsidiary in Masan Group's financial statement, increasing Phuc Long's valuation to USD355 million.

Is Phúc Long an “expensive investment”?

Buying shares to control a potential brand over multiple stages is not new. ThaiBev paid USD5 billion for a 51% stake to control Sabeco at VND 320,000 per share. After that deal, SAB's price decreased to VND230,000. Many argued that ThaiBev bought Sabeco at a higher price than its actual value. But Thaibev believed they were buying control of a company with a Top 2 market share in a country of nearly 100 million people and large beer consumption, with a huge potential to explore.

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ThaiBev or Masan will create synergistic value for the acquired company by introducing new products, a comprehensive distribution/retail system, and changing corporate governance to increase business efficiency, i.e., 1+1 equals 3, 5, 10, even a hundred, not only 1+1=2.

Masan Group's representative shared their M&A strategy: "When buying shares in other companies, whether at strategic level or controlling level, Masan has determined not to buy revenue or profit, but to buy a 'platform' to contribute Masan's overall strategy. "Indeed, Masan's investment in Phuc Long has demonstrated strong synergies with the Point of Life strategy. Masan has quickly expanded the number of Phuc Long's kiosks in WinMart+ stores while promoting flagship stores. By the end of June 2022, Phuc Long had 74 flagship stores and 971 kiosks, generating VND 820 billion in revenue in the first six months of 2022. Revenue of flagship stores in the first six months of 2022 and the second quarter of 2022 reached VND 549 billion and VND 281 billion, respectively. Flagship stores recorded NPAT margins approaching 25%. These stores are expected to be the primary driver of Phuc Long's revenue and profit growth in the second half of 2022, while the company aims to open 40-50 more flagship stores. Kiosks in WinMart+ will be further expanded when model normalization is completed.

Masan invested more than VND 3,600 billion in Phuc Long, which is the driving force for this F&B chain to accelerate in the USD2,3 billion market of tea and coffee products with a growth rate of 10% per year.

After becoming a subsidiary of Masan, Phuc Long also received many benefits from the ecosystem of this "giant" consumer-retail ecosystem. Phuc Long has leveraged Masan's ability to understand consumers and product research and development capacity to constantly develop new product portfolios that meet modern consumers' needs. For example, Phuc Long's new menu has increased the average 1-day sales of 1 kiosk to 75% despite not being widely promoted. Phuc Long plans to expand this new menu to hundreds of kiosks.