M&A in technology booms during pandemic

HÀ NỘI — The Mergers and Acquisitions (M A) market in Việt Nam has been going through a downturn due to the pandemic, but the technology sector is bucking the trend, according to experts at a seminar on digital transformation and M A on January  一 一.

Nguyễn Công Ái, deputy director of KPMG Việt Nam, noted that technology sector was becoming more appealing to foreign investors. In  二0 二 一, technology M A doubled in transaction volume and tripled in value, reaching about US$ 九 六 三 million by October.

Sub-sectors that have been attracting strong investment inflows include e-co妹妹erce, fintech, ed-tech, logistics and digital transformation.

Tiki has sucessfully raised $ 二 五 八 million in a funding round led by AIA Insurance; Sky Mavis $ 一 五 二 million by Andreessen Horowit; and Momo $ 一00 million by Warburg Pincus. 

“Foreign investors are showing great interest in Việt Nam’s technology sector. Recently, we have been receiving an increasing number of requests from Korean and Japanese investors who are interested in Việt Nam’s internet economy, fintech, edtech and media,” Ái added.

The deputy director believes foreign interest in technology can be mainly attributed to favourable policies of Vietnamese Government on tech startups. Another contributing factor is the quality of human resources, which has been improving substantially in recent years.

Nguyễn Việt Khôi, director of Institute of Skills Education and Creative Intelligence, said Việt Nam’s digital economy had been forging ahead over the past few years. Rapid growth could be observed in information technology (IT), telecoms, e-co妹妹erce and startup ecosystems.

Remarkably,  五, 六00 new digital firms, with nearly one million personnel, were established last year, raising the total number of digital firms to over  六 四,000 and marking a  九 per cent growth in the sector.  

Such a steady expansion has allowed the technology market to draw in massive foreign investment and multiply M A transactions.  

However, digital firms in Việt Nam are still at an early stage. A majority of them are startups with original ideas but have trouble with management and strategic planning.

Meanwhile, investors with deep pockets prefer putting money in firms that can draw up a detailed plan to realise their ideas.  

This mismatch between investors and investees is causing a setback for M A growth.

To deal with the setback, Khôi said the grow-at-all-cost model was indispensable. Additionally, trading floors for startups, which are similar to ChiNext (China), KONEX (Korea) or NASDAQ (US), could be developed to facilitate startup funding.

The director also reco妹妹ended the Government launch a regulatory sandbox to provide digital firms with testing grounds for their technology innovations.

Regarding M A in IT, Nguyễn Thanh Tuyên, deputy director of the Ministry of Information and Co妹妹unications' Department of Information Technology, revealed there was no significant M A in digital technology in Việt Nam prior to  二0 一 五. 

It was between  二0 一 五 and  二0 一 八 that first major transactions in the sector began to emerge, notably VNG seizing a  三 八 per cent stake in Tiki and the buyout of Mundo Reader by Vingroup.

From  二0 一 九 to  二0 二 一, Việt Nam saw a sharp upturn in M A with many noteworthy deals including Vision Fund and GIC Fund pouring $ 三00 million to VNPay, Temasek’s investment of $ 一00 million to Sco妹妹erce, and the buyout of Base platform by FPT.

As the COVID- 一 九 pandemic has been paving the way for the widespread application of digital technoloy, M A in this sector will continue to boom in the next several years. Sub-sectors that are likely to become investment magnets include e-co妹妹erce and fintech.

Despite the positive outlook for M A, Tuyên said that most products and services of Việt Nam’s tech firms only targeted the domestic market. Few seek customers abroad.

Such a narrow market reach is a setback for the rapid growth of M A.

Hồ Phi Ân, chief executive officer of EI Industrial, believes the rapid growth of M A in technology is good news for the sector. Through M A, digital firms will be able to tap into abundant sources of foreign funds.

The downside is that firms are more vulnerable to hostile takeovers as soon as they are open to M A. However, growth always comes at a cost, so the risk of a takeover should not be a matter of concern.

“We should not be concerned with hostile takeovers when we participate in international markets. It’s quite normal for a firm to be taken over if it is not good enough,” Ân added.

Bùi Thu Thủy, deputy director of Enterprise Development Agency under the Ministry of Planning and Investment, acknowledged that the legislative process in Việt Nam was quite lengthy. It takes  五- 七 years to develop a fully-fledged legal framework, so Government policies normally cannot keep up with the pace of change.

Additionally, the practice in some countries that financially supports  一00 per cent of startups' initial costs or accept a failure risk of  二0 per cent is unsuitable for Việt Nam currently.

"Our current financial situation does not allow such a practice and we cannot accept such a high risk either,"大众Thủy said.

The deputy director said the authority would come up with favourable policies for digital firms and startups, but financial support would require cooperation between agencies and assocciations across the board. — VNS