ACA Investments announced plans last month to get its $70-million real estate fund in Vietnam underway in July. Partner Mr. Hiroyuki Ono told VET that CBD residential and commercial assets are of interest to the fund and it is also looking into industrial assets such as warehouses. It also prefers to invest in companies with a shareholder management team that understands what it is like to receive institutional funds and how to deal with new shareholders.
One of the best-performing fund managers in Asia, ACA Investments has a head office in Singapore and extensive experience in investing in projects throughout the Asia-Pacific region. It was established in 2008 and focuses on growing companies in specific industries as well as investment-related services, such as merger and acquisition (M&A) advisory. Previous Vietnam investments include the Viet Thanh Technology Corporation in March 2014, the Cat Dong Trading and Service JSC in March 2015, the BBM Investment JSC in August 2016, and the Son Kim Land Corporation in January 2017.
Mekong Capital, meanwhile, announced in May that the Mekong Enterprise Fund III (MEF III) had completed two investments in two private Vietnamese companies – Pizza 4P’s and Pharmacity – bringing its total investees to nine. “Vietnam will maintain its high rate of economic growth and the government promises to continue improving the business environment,” Mr. Chad Ovel, Partner at Mekong Capital, told VET. “This will create favorable conditions for the country’s private sector, especially for consumer firms amid a rising middle class.”
ACA Investments and Mekong Capital are just two funds with their eye on Vietnam. According to the Vietnam Private Equity Investment Outlook 2019 report released in May by auditing and business consultants Grant Thornton, Vietnam and two other countries topped ASEAN’s private equity (PE) value and volume in 2018. Thirty-four per cent of respondents surveyed see Vietnam as the most attractive investment destination in the region.
According to Ms. Nguyen Thi Ngoc Chau, Senior Manager of Advisory Services at Grant Thornton Vietnam, 2018 set records in deal numbers, total value, and growth. There were 38 PE transactions in the country last year, worth more than $1.6 billion, behind only Singapore and Indonesia. Transaction numbers rose 41 per cent and value 285 per cent compared to 2017.
With appealing demographics, Vietnam is without a doubt a fruitful market for investors in the consumer sector, according to Mr. Ovel. “The recent US-China trade war has resulted in the rapid relocation of many manufacturers from China to Vietnam, which gives an additional boost to the country’s already high rate of growth,” he said.
Specifically, he went on, sectors like retail, both online and offline, restaurants, fast-moving consumer goods, private healthcare, and private education all boast opportunities Mekong Capital is actively scouting for. In retail, the industry is estimated to be worth nearly $180 billion by 2020 but Mekong Capital is yet to see any player with a dominant position or significant market share.
Though the Kuala Lumpur-headquartered Creador has only invested in the Mobile World Group (MWG) to date, the PE firm believes its investee has been able to capture the latest trends in retail, adopt best practices, and continue to optimize their omni-channel operations. Ms. Nguyen Hanh Vinh, CEO of Creador Vietnam, told VET that one distinct advantage in Vietnam is its young, dynamic, and entrepreneurial generation. “This has led to its booming startup culture, ranging from e-commerce, fintech, and logistics to education and healthcare,” she added. “These are fast-growing sectors that may attract further investment into the country.” The company’s key focus will remain on five trajectories: retail, consumer, financial services, healthcare, and business services.
The Grant Thornton report also revealed the top 6 attractive sectors for PE investment in Vietnam over the next 12 months, with tech startups leading the trend. Education, green energy, and logistics are expected to experience robust growth in the future.
Looking forward, Ms. Vinh believes there remain quite a few good opportunities in Vietnam. In many of such cases, however, the foreign ownership limit represents a major obstacle for fund investment. Raising the limit in key sectors or relaxing operational restrictions for foreign companies in sectors such as finance and retail would deliver a significant boost to the country as well as provide the re-rating catalysts for companies to establish their true potential and valuation. “Stable and non-restrictive policy direction towards the banking and real estate sectors would also help to reduce the volatility risk for PE funds when investing in an emerging market like Vietnam,” she added.
Another key challenge is building senior management teams to provide a strong foundation for future growth, according to Mr. Ovel. “Quite often, the incumbent management team does not have the experience or competency required to manage a business that will be five to ten times larger in just a few years’ time,” he said. “Mekong Capital invests a substantial amount of effort in supporting its investees to evolve their leadership skills and add new talent to senior teams through recruitment. But with rapid recruitment from outside, there is always a risk of diluting the company’s historic corporate culture,” he said. Thus, the fund also supports investees to choose and embed whatever culture may be needed to achieve their long-term vision.
The Grant Thornton survey showed that high valuations and a lack of attractive deal opportunities remain the top two challenges in target identification for most PE firms looking at Vietnam.
Ms. Vinh said that management quality and information transparency are still questionable in many cases. A professional investor relations team, comprehensive presentations, detailed data, transparent accounting standards, and an open management team are key to assessing the feasibility of any potential transaction.
Grant Thornton believes that the vast potential for Vietnam’s PE growth in the years to come derives from the following factors: strong momentum in 2018; the private sector being seen as one of the four key drivers of Vietnam’s economy in 2019, especially with the strong development of startups; State-owned enterprise (SOE) equitization speeding up in 2019 after a slowdown in 2018, which would bring a large pool of potential investment opportunities; and the economy gaining advantages from free trade agreements (FTAs), particularly the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the EU-Vietnam FTA, and the ASEAN-Hong Kong (China) FTA, according to Ms. Chau.
Vietnam Economic Times