Tiểu luận m a trends in the world and in vietnam

Cross-border M&As consists of horizontal M&As, vertical M&As and conglomerateM&As Greenfield investment is also Foreign Direct Investment where a parent company sets up thecompletely new

M&A Trends in the World

and in Vietnam

November 2012 CLASS DTUE 310.2

Introduction 1

1 Factors driving cross-border M&As 2

1.1 Macro-level factors 2

1.1.1 Economic growth 2

1.2 Industrial-level factors 2

1.2.1 Major sector 2

1.2.2 Related industry 2

1.3 Firm-level factors 2

1.3.2 Difference of skills 3

1.3.3 Difference of firm strategies 3

1.4 Technology-related factors 3

1.4.1 Difficulty of R&D 3

1.4.2 New technology 3

1.5 Government-related factors 4

1.5.1 Government Policy 4

2 The trend of cross-border M&As in the world 4

2.1 Overview 4

2.1.1 Cross-border M&As and Greenfield investment 4

2.1.2 Cross – border M&As and Domestic M&As 4

2.2 Regional trend in cross – border M&As 5

2.2.1 Host countries ( the sellers) 7

2.2.2 TNCs (the buyers) 9

2.3 Sectional trend of M&As 11

2.3.1 Primary industry 12

2.3.2 Manufacturing industries 13

2.3.3 Services industries 14

2.4 Prospects and conclusion 15

3.1 Overview 17

3.2 Trend in region/economy of purchaser 18

3.3 Trend in sector 20

4 Opportunities and Challenges for Vietnam 21

4.1 Opportunities 21

4.1.1 Vietnam is considered as an attractive destination of M&A 21

4.1.2 On the investors’ side 22

4.1.3 On the firms’ side 22

4.2 Challenges 23

4.2.1 Some legal issues 23

4.2.2 In general, Vietnamese (include the authority, enterprises, investors, intermediaries, brokers ) still lack of information and understandings about M&A which leads to 24 4.2.3 The weakness in competitive capacity, methods of specific management, national accounting apparatus that leads to 24

4.3 Solutions 25

4.3.1 Adjustment to the legal system 25

4.3.2 Improving knowledge and understandings about M&A 25

4.3.3 Improving skills and experience of intermediaries 25

4.3.4 Improving understandings and capacity of companies involved 25

Conclusion 27

References 28

Cross-border mergers and acquisitions (M&As) have grown rapidly recently Some transactions had the value about two times larger than the gross domestic product

of Vietnam such as Vodafone Airtouch PLC and Mannesmann merger at about

$183 billion and AOL Inc and Time Warner at about $165 billion (Wikipedia, Merger and Acquisition, Major M&A)

Cross-border M&Asmust now be included among the fundamental mechanisms of industrial globalization In addition, cross-border M&As now contributes a greater part for total value of foreign direct investment rather than greenfield investment does It happens again and again in all geographical areas from developed countries to developing countries, and all industries However the proportion of cross-border M&As in difference areas, difference industries are incommensurate and it changes considerably over time.

Our paper aims to point out the recent trend of cross-border M&As in the world and in Vietnam In the first part, we list a number of factors that drive the M&As trend The second part shows the trend of M&As in the world from 2005 to 2011 This trend is analyzed in both different geographical areas and different industries Next we present the trend of cross-border M&As in Vietnam in recent years And

in the final part we briefly suggest pros and cons of M&As situation happening in Vietnam

1 Factors driving cross-border M&As

Why is the number of cross-border M&As higher than before? Why do most of cross-borderM&As happen in developed countries? The answer is that there are many driving factors behindcross-border M&As Each factor plays a particular role and all of them decide the trend of cross-border M&As as a result Many factors affect the both two parts of foreign direct investmentwhich includes cross-border M&As and greenfield investment.However, we just mention factorsthat mostly drive cross-border M&As Most of these factors are realized based on empiricalevidences.In general, we can divide these factors into five groups as follows

1.1.Macro-level factors

1.1.1 Economic growth

Economic growth affects both the supply and demand for cross-border M&As.Obviouslyeconomic expansion increases the price of shares and earning so it raises the pool ofcapital for companies in home country to invest abroad Furthermore, an economic boom in hostcountries increases the short-term profitability of target companies for acquisition In contrast, aneconomic crisis is likely to prevent cross-border M&As According to the UNCTAD WorldInvestment Report, in 2007, in which the world economy boomed remarkably, the value ofcross-border M&As reached $1,023billion; however, in 2009, in which the world economysuffered a crisis, the value of cross-border M&As was only $250 billion

1.2.Industrial-level factors

1.2.1 Major sector

Cross-border M&As tends to be concentrated in a few major industries recently According tothe UNCTAD World Investment Report agriculture, petroleum, chemical and finance haveremained a significant proportion of the total M&As value Out of these sectors, petroleum so farhas been one of the most significant sectors for M&As One of the reasons is that petroleum hasplayed a significant role as one of the main fuel supply in all industries; moreover, many of theworld’s largest companies have been petroleum companies

1.2.2 Related industry

Evidently, TNCs now often target firms which operate in the related industry for merger.According to the UNCTAD World Investment Report, more than half of cross-border M&Astook place in the similar or related industry Restructuring and concentration on a core businessstand for the purpose of this situation

1.3.Firm-level factors

1.1.1 Achievement of competitive advantage

Competitive advantage becomes an important reason for TNCs to conduct M&As For example,

a TNC is certain to improve its competitive advantage through synergy from M&As such asproduction knowledge, labor skills, marketing capabilities, brand name and so on Theseadvantages can be applied repeatedly and simultaneously to multiple locations and businesses in

a non-rivalry manner

1.3.1 Difference of skills

For many TNCs, the difference of skills is possible to create different decisions for M&As It hasbeen observed that firms with technological skill frequently target greenfield investment whileothers with organizational and managerial skill prefer cross-border M&As (OECD Science,Technology and Industry Working Papers,2001) Here,technologicalskill is related to technologydevelopment and the ability to innovate in research and development, while organizational andmanagerial skill is associated with the ability to absorb and use existing knowledge

1.3.2 Difference of firm strategies

Firms with difference strategies tend to have difference decision of foreign direct investment Forexample, a firm which has a shortage of strategic assets to be competitive frequently chooseM&As as a sensible solution By merging with others, this firm is likely to gain more strategicassets such as facilities, human resources… In contrast, a firm which has abundant strategicassets seem properly target greenfield investment Thanks to greenfield investment the firm isable to protect its strategic assets such as secret recipes, managerial method…

1.4.Technology-related factors

1.4.1 Difficulty of R&D

In the business world today, R&D not only become more important but it also cost more moneycompared to the past The soaring costs of R&D, combined with the uncertainties oftechnological change, have forced firmsto co-operate with others in global markets throughvarious unions and strategic alliances in order to fundresearch expenditures for new products.For example, the large R&D costs required to develop newgenerations of drugs is considered themajor driving force for M&As in the pharmaceuticals sector

1.4.2 New technology

Evidently new technology creates new markets and businesses such as in information technologyindustry Mergers and acquisitions can be a quick and easy way to react to competitors and

TNCs merged many firms in telecommunications, media and information industries in order tocapture new markets created by new technologies, particularly the growth of the Internet, and toprovide more integrated global services.

2 The trend of cross-border M&As in the world

2.1.Overview

2.1.1 Cross-border M&As and Greenfield investment

Cross-border M&As is defined as a form of Foreign Direct Investment in which an enterprisefrom one country buys the whole asset or controlling percentage of an enterprise in anothercountry Cross-border M&As consists of horizontal M&As, vertical M&As and conglomerateM&As

Greenfield investment is also Foreign Direct Investment where a parent company sets up thecompletely new production venture at the host country

While Greenfield investment adds new productive facility, which is an addition to existingproduction capacity of the economy, M&A transfers the ownership of existing asset into foreigncompanies In recent year, cross-border M&As seems to take some advantage over GreenfieldInvestment in some aspects such as technology transfer, economies of scale, strategic assets, etc.Because of the more efficiency in resources, the growth of cross – border M&As has been morepopular than Green field Investment

2.1.2 Cross – border M&As and Domestic M&As

Based on the nationalities of the transacting parties, M&A transactions can be divided into twocategories: domestic M&As (where participating parties are of same nationality) and cross-border M&As (where participating parties come from different countries) In attempt to tradewith other foreign countries for mutual benefits, domestic companies usually merge or acquire

with other foreign companies in spite of their domestic countries This is due to the ambition tobecome more powerful abroad, to integrate with other countries, etc Recently, cross-borderM&As has been largely overshadowed by domestic M&As, both in the number of transactionsand in their total value.

Overall, compared with Greenfield Investment and domestic M&As, Cross-border mergers andacquisitions (M&As) have rapidly increased in recent years, accelerating the globalization ofindustry and reshaping industrial structure at the international level M&As are taking place in arange of regions –developed countries; developing countries and industries - including maturemanufacturing sectors, high technology fields and service sectors - and reflect a need torestructure and strengthen global competitiveness in core businesses

This fact will be proved in the next two parts of this working paper

2.2.Regional trend in cross – border M&As

Due to the difference in the mode of investment, cross border M&As is expected to exhibitdifferent impacts on host countries (the sellers) and TNCs countries (the buyers) In this workingpaper, we will find out the trend of cross – border M&As through both host countries and TNCscountries

The table below shows the net cross-border sales and net cross-border purchases byregions/economies of the world reported by UNCTAD 2012 of some selected countries in theworld during the period 2005 - 2011

TABLE 1: VALUE OF CROSS – BORDER M&As, BY REGION/ECONOMY OF SELLER/PURCHASE

2005 -2011 (MILLIONS OF DOLLARS) - (Source : UNCTAD 2012 –Annex I.3)

2.2.1 Host countries ( the sellers)

There may be a number of reasons for a firm to become the selling party to a cross-border M&Atransaction Besides simply being targeted by a foreign investor which wishes to enter the hostcountry by buying into a local firm, it can be because of a firm’s urgent need for capitals to getrid of its financial troubles when there are limited financial resources available in its homecountry; or it may be the strategy of a domestic firm to have a stronger presence in the worldmarket Furthermore, the host countries can take advantage of technology transfer and make use

of some strategic assets from TNCs Accordingly, the sellers in cross-border M&As are alsoplaying the crucial role, which may affect many aspects of the transactions

Different organizational structures of the sellers may produce different legal consequence tocross-border M&As Trends in cross-border M&As differ among developed countries,developing countries and countries in transition Nevertheless, developed countries play a majorrole as the host countries

3 Cross- border M&As trend of developed host countries

According to the UNCTAD definition of developed countries, which includes 24 OECDcountries (excluding Korea, Mexico, Poland, Hungary and the Czech Republic), plus SouthAfrica and Israel

It is clear that the developed countries play an crucial role as the host countries of cross –borderM&As During the period from 2005 to 2011, they took up a major proportion in M&As in theworld Last year, developed countries reach 409,691 million dollars, accounting for nearly 80%

of the total From this above table, there was a boom in net cross –border M&As sales in 2005 –

2007 In 2007, the net cross – border M&As sales of the developed countries and the world was891,896 million dollars; 1,022,725 million dollars, respectively According to UNCTAD’sanalysis, this cross - border M&A sales boom is partly caused by increase in the activities ofcollective investment funds – private equity funds and hedge funds – in FDI In 2005, cross–border M&A activities increased significantly, which took up to 88% the net cross – borderM&As sales of the world, drove the rise in FDI inflows to developed countries Flows wereparticularly buoyant in the United Kingdom, France, and the Netherlands The European Union

as a whole continued to be the largest host region, attracting almost 40 % of total FDI inflows in

2007

After reaching at the peak of net cross – border M&As sales in 2007 and dropping sharply duringthe next two year because of the world financial crisis, the developed host countries’ net saleshave been improved There may be a promising future for the net cross – border M&As sales ofthe developed countries

FIGURE 1: Cross – border M&As trend of developed host countries in term of value (2005 – 2011)

(Source: UNCTAD 2012 – annex table I.3)

4 Cross – border M&As trend of developing host countries

South Asia, East Asia and South-East Asia together were the largest recipient of FDI among alldeveloping regions The region accounted for two fifths of FDI inflows Such flows raised US$

249 billion, 18 % increase over 2006 The contribution to this growth were significant border M&As, amounting to almost US$ 100,381 million – an increase of 12% compared withthe previous year China and Hong Kong (China) remained the two largest FDI recipients in theregion as well as among all developing countries Vietnam was one of the countries, which wereless attractive to foreign investors in early 2005 However, in recent year, the net cross – bordersales in Vietnam pumped up dramatically Last year, Vietnam earned US$1,460 million fromcross – border M&As activities as a host country

cross-The world crisis and economic downturn also had a dampening effect on cross-border M&As,the value of which fell considerably in 2009 However, developing countries has graduallyrecovered in the near future

5 Cross – border M&As trend of host countries in transaction

Besides developed countries and developing countries, countries in transition have also been thepotential destination of foreign investors recently It was a remarkable improvement of countries

in transaction to reach the net cross – border sales of US$ 32,970 million in 2011 from US$ 5,279 million in early 2005 This results has led to the 6% of the total net cross - border

-FIGURE 2: The proportion of net – cross border sales of the world in 2011

(Source: UNCTAD 2012 – annex table I.3)

5.1.1 TNCs (the buyers)

Theoretically, a cross-border M&A transaction starts with the buyer’s initiative forstrategicexpansion The motivations and conditions of the buyer decide a number of keyissues concerningthe transaction, such as the type of the target, as well as the patternfollowing which thetransaction will proceed

TNCs have impacted differently on national economies when considering developed anddeveloping countries and countries in transition In the case of developing countries, theconclusion of M&As may allow national governments to pursue development policy In fact, thelocation of the new corporate entities can be a useful tool for the takeoff of the nationaleconomy As far as developed countries are concerned, M&As can be used to reduce oreliminate economic unbalances within national borders by encouraging the location of someaffiliates of the new corporate entities in depressed regions, thus stimulating national growth.According to UNCTAD 2012 (as mentioned in TABLE 1 in this working paper), the net – cross -border M&As purchases of the world has been increased in recent year We will specify thistrend by regions/economies in the following contents:

6 Cross – border M&As trend of developed TNCs countries

As reported by UNCTAD 2012, the United States is the single most important TNCs country,which took up 25% (about US$130,615 million) the net cross – border purchases of the total in

top ten developed countries in terms of cross-border M&As purchases United Kingdom andCanada remained their position in the top 10 regions which have the highest cross – borderM&As purchases In 2011, we have seen the recovered of Japan cross – border M&As.Compared to 2010, its cross – border M&As net purchases was doubled in 2011 ( US$ 62,687millions of dollars) This helped Japan reach the 2nd position in the top 10, after United States.

FIGURE 3: Top 10 TNCs developed countries in term of cross – border M&As purchases during 2005 – 2011

(Source: UNCTAD 2012 – annex table I.3)

7 Cross – border M&As trend of developing TNCs countries

FIGURE 4: The developing countries’ net purchases during 2005 – 2011

(Source: UNCTAD 2012 – annex table I.3)

The developing countries’ net purchases have been rather quiet during 2005 - 2011, mainly as aresult of the debt crisis which affected these countries Many firms have huge debts, and mayhave in effect defaulted on loans This situation allowed little scope for cross – border M&Aspurchases In detail, in the beginning of the financial crisis in 2007, cross – border M&As netpurchases of developing countries accounted for only 14% of the total (US$ 73,975 millions ofdollars out of US$ 525,881 millions of dollars)

8 Cross – border M&As trend of TNCs countries in transition

FDI to transition economies, expanded significantly, by 41 %, to a new record of US$98 billion

in 2007.This was the seventh year of uninterrupted growth of FDI in the region Outflows almostdoubled to the region thanks to the increase in the cross – border M&As of TNCs in transitioneconomy In 2011, it reached US$ 13,510 millions of dollars, accounting for 2.6% of the world

in total However, transition economy still plays a minor role as TNCs in the world

8.1.Sectional trend of M&As

Cross – border M&As appears to occur to different extents across sectors as primary industries(gas, oil, petroleum, etc.); manufacturing industries (vehicles, chemistry, car, motorbikes,etc.)and services industries (banking, financing, telecommunication, insurance,etc.) The factorsgenerating cross – border M&As by section are identified in the flourishing of regulatorychanges at global and in the fast pace of technological change which has enhanced business andmarketopportunities, technological interrelatedness, and communications and cross –

borderrestructuring This paper will examine in which industries the propensity to engagecross –border M&As has been the highest.

The table bellows show the value of cross – border M&As, by sector/industry in millions ofdollars during the period 2005 -2011, which was reported by UNCTAD 2012

TABLE 2: VALUE OF CROSS – BORDER M&As, BY SECTOR/INDUSTRY, 2005 – 2011 (Millions of dollars)

(Source: UNCTAD 2012 – annex table I.5)

8.1.1 Primary industry

Primary industry is an industry involved in the extraction and collection of natural resources.According to UNCTAD analysis, primary industry consists of Agriculture, hunting, forestry andfisheries; mining, quarrying and petroleum From TABLE 2, we can see the sharply decrease incross – border M&As in Agriculture, hunting, forestry and fisheries but a boom in mining sector

This trend has accelerated between 2005 and 2010 Annual cross-border M&A net purchases in

the primary sector; mining, quarrying and petroleum; between 2005 and 2010 globally, increasedfrom less than $3 billion in 2005 which accounted for less than 1% of cross-border net purchases

in all sectors combined, to $52 billion in 2010, which accounted for 15% of the total cross-bordernet purchases in all sectors globally Compared to the overall trends in global FDI outflows, and

specifically global M&A net purchases, cross-border M&A net purchases in the primary sectorhave exhibited absolute strength over five and six year periods, and consistent relative strength

on a yearly basis The value of natural resource FDI projects reached a total of $254 billion in

2010, giving the primary sector a 22% global sectors share of total FDI This is an increase from14%, where the sector's share was in 2007 onset of the financial and economic crisis

FIGURE 6: The net sales/purchases of Primary sector Mining, Quarrying and Petroleum 2005 -2011

(Source: UNCTAD 2012 – annex table I.5)

8.1.2 Manufacturing industries

Manufacturing industries refers to those industries which involve in the manufacturing and processing

of items and indulge in either creation of new commodities or in value addition

Industries Net sales Net purchases

Food,berverage and tobacco 43,578 27,393Chemical and chemical products 76,424 87,749Electrical and electronic equipment 27,564 19,514Precision instruments 11,354 17,763Metals and metal products 6,574 18,969

TABLE 3: TOP 5 MANUFACTURING INDUSTRIES IN 2011

(Source: UNCTAD 2012 – annex table I.5)