Acquisitions worth well over a billion dollars took place this year in retail and banking, and the trend could persist in 2020, experts say.
A woman walks past a VinMart+ outlet in Hanoi. Photo by Reuters.
Vingroup made headlines earlier this month by announcing it would merge its retail arm, Vinmart, with food giant Masan to focus on industry and technology.
The deal’s value has not been disclosed, only that over 2,600 VinMart and VinMart+ outlets will be controlled by Masan, which is set to become the biggest retail player in the country.
It was the latest in a series of merger and acquisition (M&A) deals in retail this year as industry players seek to grow in the competitive market.
In May the Republic of Korea's company GS Retail acquired all 49 outlets of local player Zakka Mart and turned them into GS25 outlets. The value of the deal was not disclosed.
The rising income of citizens is one of the reasons for the booming retail market. Market research company Euromonitor said by 2030 Vietnam would be the third largest urban market in Southeast Asia in terms of consumer numbers and fifth largest in terms of spending.
Rapid urbanization is another reason. Vietnam’s urbanization rate rose from 23.7 percent in 1999 to 38.4 percent last year, with the economic growth rate in urban areas being 2.5 times that of rural areas, according to the Ministry of Construction.
These figures translate into growth for the retail industry, though it is mostly the big players who will benefit.
"Major M&A deals this year show that the retail market is filtering out small players as conglomerates pour big bucks into expansion," economist Le Dang Doanh said.
But in the crowded market only deep-pocketed players could survive, and even fiercer competition is expected in future as bigger companies bring in a variety of products at lower prices, he said.
Vietnamese players dominate the scene, with experts explaining it is due to their better understanding of local needs. Besides VinMart, grocery chain Bach Hoa Xanh has 953 outlets and Saigon Co.op. has 878.
Most foreign players continue to struggle. In June French supermarket group Auchan Retail pulled out due to losses. Japanese chains Ministop and FamilyMart are far from executing their plans to have 800-1,000 stores.
Banking banks on capital
The banking industry too saw some major M&A deals in 2019 as local banks sought to increase their capital to back their expansion.
BIDV sold a 15 percent stake to the Republic of Korea (RoK)’s KEB Hana Bank in November. The deal, valued at VND20.2 trillion ($872 million), made BIDV the largest bank by charter capital in the country.
Vietcombank earlier this year sold a 3 percent stake to foreign investors for VND6.2 trillion ($270 million) as part of its plan to eventually sell 10 percent.
Economist Can Van Luc said as Vietnam’s economy continues to expand rapidly and banks’ profits are set to grow by 20-30 percent this year, investors are keen to buy into them.
More M&A deals are expected since the government would not allow new foreign banks until the end of 2020 as it restructures its financial system, including by selling ailing banks to foreign investors, he added.
Nguyen Tri Hieu, another economist, said the government wants to create a Vietnamese bank that can expand into the region and even globally, and one of the critical conditions for this is having a large capital base.
This means smaller banks could consider merging to achieve this target, he added.
Other notable M&A deals this year include the Republic of Korea's SK Group’s purchase of a 6.15 percent stake in Vingroup for nearly $1 billion and a 9.5 percent stake in Masan for $470 million.
The total value of M&A deals last year was $7.6 billion, analysts said at the 2019 Vietnam Mergers and Acquisition Forum. They forecast it to be $6.7 billion this year.
Vnexpress
