HÀ NỘI — After seeing positive results in the first half of 2022, mergers and acquisition (M&A) activities in Việt Nam is forecast to slow in the second half as investors become more conservative about several macro trends impacting the country’s economy, according to an analysis of M&A data by Ernst & Young (EY).

“While the country’s fundamentals are still strong, we are not immune from such negative movements as the downturn in the capital flow from developed countries to emerging markets, geopolitical tensions, and high inflation. Those trends cast doubt on investors’ confidence in Việt Nam and many other markets,” Trần Vinh Dự, leader of EY Indochina Strategy and Transactions, said in the analysis released last week.

“In the Vietnamese market, we still observed strong growth of private equity (PE) and venture capital (VC) investments during the first half of the year despite some turbulence in equity and debt markets. According to our research, the total deal value transacted in H1 2022 in the country was almost the same as the total deal value transacted in the whole of 2021 (US$4.97 billion).”

However, according to Dự, the technology sector in Việt Nam has not been as strong as expected although receiving strong interest from investors.

“There were only four tech-related deals announced in H1 as reported by Mergermarket, compared to seven deals at the previous cycle,” he said.

A sizable one in H1 2022 was a deal of Việt Nam-based e-commerce solutions provider OnPoint, worth $50 million from an indirect wholly-owned subsidiary of Temasek. The deal targeted Việt Nam’s fast-growing e-commerce industry and became the largest private fundraising round in Southeast Asia’s e-commerce-enabler industry in the last five years.

In recent years, the main technology fields, that have attracted a large amount of investment capital in Việt Nam, included e-commerce, Fintech, Ed-tech, Logistics and business automation.

According to EY’s analysis, despite major geopolitical and financial headwinds, global M&A activity in the first half of 2020 has been resilient. With 2,274 deals with a total value of $2.02 trillion, M&A in H1 2022 may have seen a drop compared to this time last year (down 27 per cent by value and 18 per cent by volume), but activity is up compared to the average of the last M&A cycle (up 35 per cent and 13 per cent respectively).

The nature of cross-border deals is changing to reflect geopolitical tensions on the world stage. While cross-border transaction levels in H1 have decreased (24 per cent in 2022 against an average of 30 per cent over 2015-19), the share of cross-border deals among closely affiliated countries has increased (51 per cent in 2022 compared to an average of 42 per cent over 2015-19). The analysis finds that investment from China into the US has fallen from $27 billion at the high point in H1 2016 to $1.9 billion, while North American investment into Europe has increased from $60 billion to $149 billion over the same period.

Andrea Guerzoni, Vice Chair of EY Global Strategy and Transactions, said: “Coming off the SPAC-induced highs of the first half of 2021, M&A activity was always going to go through a correction. But what we see is that unlike when COVID-19 hit and deal activity came to a standstill, CEOs are still trying to look through the fog and are pursuing transactions that will help position their organisations for future growth. On the global stage, while there is still a strong appetite for cross-border deals, CEOs are more selective in whom they do deals with, preferring to ‘friend-shore’ their operations and pursue transactions within friendly pockets rather than applying a truly global approach.”

According to EY, despite the widespread uncertainty, a fragile global economy, and increased regulatory intervention, M&A is continuing apace, with a particularly strong flow of private capital driving activity. Even though capital market conditions have tightened sharply through the first half of 2022, PE firms still have large amounts of cash that will need to be deployed in the latter half of the year.

“A trend that I expect to become a mainstay in the coming months is the use of private capital in both the equity and debt portions of transactions. Driven by both the vast amount of private capital available and rising interest rates, I expect this trend will continue making the role of private markets even more fundamental to the global economy. A barrier to this flow of deals will be if conditions deteriorate to the extent that debt financing dries up or becomes prohibitively expensive,” Guerzoni said.

According to Guerzoni, while global M&A activity has proved remarkably resilient in the face of major geopolitical headwinds, it is uncertain whether it could sustain further shocks, whether that is further lockdowns, heightened geopolitical tensions or a recession. — VNS