Utilities
Vietnam M&A 2019 Research Report| Issue 9 | August 2019
Foreign investors eyes acquisitions in Health Care
Source: FiinGroup
Figure 28: M&A Deal Value (US$mn) & Deal Number 2011-1H2019
Domestic 21%
Inbound 79%
Outbound 0%
Figure 29: M&A Deal Value Proposition, 2011-1H2019
Section 4: Sector Review |Emerging Sectors for M&A
Health care is among one of the most vibrant sectors for M&A activities over the last decade, accumulated the value of US$1.3bn from 80 deals recorded since 2011. Deal making in this sector mainly focused on Pharmaceuticals and Medical Equipment, dominated by inbound inflows accounting for nearly 80% of the sector-wide M&A value. The growth momentum has continually been supported by rapidly increasing
pharmaceutical market which is expected to exceed US$7bn by 2020. Also, the rapid aging population and the booming of urban middle- class stimulate demand for high-quality healthcare. Meanwhile, government hospitals being overcrowded create an enormous opportunity, attracting investment from the private sectors.
After peaking in 2017, Healthcare M&A then dropped to only US$102mn with 7 deals in 2018, aligned with the overall cooling-down in value of the Vietnamese and global M&A markets under global economic uncertainties.
Even so, Healthcare ended the first half of 2019 being the 2nd most active sector with 8 deals signed, valued at US$325mn –promising to make a new record by the year-end.
▪ Fitness & Lifestyle Group Pty Ltd (FLG) acquired 100% CMG Asia stake for US$200mn.
The investment is a part of the plan by Quadrant Private Equity (FLG’ owner) to expand their business, particularly in Asia, as it prepares the overall company for sale.
▪ Taisho Pharmaceutical Holdings successfully possessed the controlling interest in Hau Giang Pharmaceuticals (DHG) - the biggest
pharmaceutical retailer in Vietnam - by raising its stake from 35% to 51% at US$106.48.
Taisho’s ambition to acquire DHG has been a long-term process since 2016 as they
continuously bought additional stakes from various major stakeholders.
Noticeable deals in 2018-1H2019
Source: FiinGroup 118
14
105
15 32
127
466
102 10 325
8
6 6
10
12 13
7 8
0 3 6 9 12 15
0 120 240 360 480 600
2011 2012 2013 2014 2015 2016 2017 2018 1H2019
Deal Value (US$mn) Vol (RHS)
HEALTH CARE
Regulations & SOE divestments to boost M&A in Health Care
▪ Decision 60/2015/NĐ-CP, together with other Dispatches empowered self-determination for public listed enterprises to remove the 49% cap on foreign capital, adding more “room” for foreign investors. Inbound M&A is expected to increase further if the official elimination of the 49% cap proposed in the new Securities Law is approved by the end of this year.
▪ Current policies tend to prevent inbound M&A deals to take the controlling interest of local enterprises, whereas providing preferential treatments for domestic pharmaceutical materials and products. In particular, the amended Pharmaceutical Law emphasised prioritising local firms in bidding activities. Meanwhile, the Decree No. 54 (taking effect from Jan and July 2017) forced foreign investors seeking to do business in distribution of drugs and medicinal materials to cooperate with local firms or to invest in existing local businesses (as FDI
enterprises having from 51% foreign investment are prohibited to directly related to medicines transportation and preservation). In other words, regulations aim at “stimulating ” foreign investments into local institutions
▪ Nevertheless, Vietnam actively participating in the global market through a series of FTAs, many foreign investors like Taisho Pharmaceutical Holdings chose to hold just a little less than 51% local firm’s stake and wait for a more open policy in the near future.
▪ Another key factor which will strengthen the upward trend of M&A in the pharmaceutical sector is the State Capital Investment Corporation (SCIC) planning to divest from many pharmaceutical enterprises including notable brands such as Traphaco, Domesco Dong Thap, and Ho Chi Minh City Medical Technical Equipment JSC.
▪ Imexpharm (IMP) and Traphaco (TRA) are considered to be the next targets for inbound Healthcare M&A, given that their up-to-now foreign major stakeholders are holding 47.8% and 47.1% respectively. In case of TRA, the Korean investors Daewon & Mirae Asset who are holding 15% and 25% TRA stake respectively from the deal with Mekong Capital & other private
shareholders last year, are still keen on occupying more stakes of the company this year.
Awaited upcoming deals
M&A activities over the medium term in Health care continues to be pushed by existing
supportive factors. Furthermore, recent regulatory changes have brought out positive effects, encouraging the participation of foreign players with minority interest, while left some space for domestic players to grow.
Vietnam M&A 2019 Research Report| Issue 9 | August 2019
M&A in education has become more active than ever amid tightening conditions for private institution establishment
Figure 30: Education M&A Deal Volume, 2011-1H2019
Source: FiinGroup
Section 4: Sector Review | Emerging Sectors for M&A
Therefore, acquiring existing universities and colleges has become a more practical choice for new players, making M&A in this field become more vibrant than ever.
• 2017 witnessed a peak of M&A activities with 6 deals, of which one mega-deal came from TPG Capital LP acquiring Vietnam Australia International School (VAS) at US$125mn.
• The most remarkable deal out of the 3 deals signed in 2018 was the acquisition of Hoa Sen University (HSU) by Nguyen Hoang Educational Group (NHG). Although the deal value was not disclosed, owning 51% of HSU, NHG officially possesses four universities nationwide..
• Meanwhile, the 100% acquisition of Thanh Thanh Cong Education (TTCE) by Navis Capital Partners (NCP) marked the exciting start for Education M&A in 2019. While TTCE is a prestige private high- quality educational provider in Southern Vietnam, NCP is a 5-billion USD equity fund taking its first step in the Education sector in Vietnam.
M&A
EDUCATION&TRAINING 2011 - 1H2019
19 Deals
• Decision No.64/2013/QD-TTg raised the minimum charter capital for establishing non-public higher education institutions from VND 50 (US$2mn) to VND250bn (US$12mn)
• Under the Decree 46/2017/ND-CP which took effect on 21 April 2017, institutions requesting to establish a non-public higher education organisation must ensure the minimum capital of VND1,000 bn (exclusive of the value of land used for construction).
• Under Decision No 37/2013/QD/Ttg approving the revised master plan on the university and college network during 2006-2020, Prime Minister asked not to establish new universities or colleges in Hanoi and Ho Chi Minh City until 2020.
Private Investors have turned interest to education especially private higher education. M&A instead of new investments or JV have been preferred since the government issued tightening regulations on new establishments of private higher education institutions since 2013.
0 0 0
1 1
2
4
1
0
0 0 0 0
1
3
2 2 2
0 1 2 3 4 5
2011 2012 2013 2014 2015 2016 2017 2018 1H2019
Domestic Inbound
EDUCATION
Investment in Education is motivated by strong domestic demand and preferential policies
Going forward
❑ Decree No. 86/2018/ND-CP allowing foreign- funded schools to enroll more Vietnamese students and signed FTAs are expected to
stimulate foreign investment and enhance inbound M&A in education.
❑ Future trends for Education
• Blended learning: Online for academic learning materials & offline for teacher-student
interaction and experience.
• STEM education: Still in early stage. Most of leading players are small-scaled with two sources of revenue: STEM teaching centers &
Collaboration with (mostly private) schools.
• Extracurricular activities (Summer camp, etc.):
Decree No. 32/2018/TT-BGDDT) highlights the compulsory duty of extracurricular activities (3
20.4 21.7 23.6 25.2 26.9 28.7
2015E 2016E 2017E 2018E 2019F 2020F
Figure 31: Education expenditure of Vietnamese people, US$bn
Figure 32: Vietnam's school age population (millions)
Figure 33: Outbound internationally mobile tertiary students (Thousands)
Investment in private education is booming in Vietnam. Most investors see an attractive market with nearly 100 million people of which approximately 50% are under the age of 35, indicating high proportion of school age population. Along with the development of science and technology, the need to be equipped with professional knowledge and language to meet the demand of the job market is strongly rising. Moreover, half the population will become middle-income class by 2035, fueling the demand for high-quality education.
• Education business brings a stable source of profit and lower risk than other investment sectors due to steady income from tuition fee. British Council, UNIS Hanoi, RMIT are non-profit institutions, but are among the top educational provider earn the highest tuition fee (US$21,000-34,000/year).
• According to a survey conducted by a group of experts from the Ministry of education in 2017m cited in Forbes Vietnam, out of 43 universities and colleges providing financial data, 77% of education institutions in Vietnam generated revenues exceeding expenditures.
54 56 59 68
82 82
0 20 40 60 80 100
2012 2013 2014 2015 2016 2017
0 30 60 90 120
150 0-24 Total
Source: FiinGroup, UN
Source: Mekong Capital, HSBC, FiinGroup analysis
According to a survey conducted by Nielsen in 2016, Vietnamese spend 47% of their income on education.
While having been dissatisfied with the domestic tertiary education system, middle & upper-class parents are paying around US$3-4mn each year to send their children abroad.
In contrast to the extremely high demand for education, the local market is still short of modern education business models and lacks branded educational products.
Stable return, lower risk
Vietnam M&A 2019 Research Report| Issue 9 | August 2019
M&A in utilities has been driven by SOEs divestments and the emerging renewable energy
• M&A activities in the utilities sector have been driven by SOEs equitisation as most of the enterprises in this sector are majorly state-owned. The period 2011-2017 showed a clear
tendency of most active M&A years in parallel with promoted SOEs equitization. For example, in 2013 utility M&A peaked at approximately US$563mn as M&A related to equitization of utility SOEs reached its highest level of US$533.12mn, accounting for nearly 95% of the total deal value.
• Recently, the emerge of renewable energy (RE) has given a new motivation to M&A in utilities.
Last year, RE M&A contributed to 53% of US$215mn total deal value in utilities, a rebound from previous loses due to SOEs, for instance PV Power and Genco 3, failing to attract strategic investors in 2017. 1H2019, utilities ranked the 5th most active sector by M&A with 14 deals worth US$142.87mn (130% 1H2018’s), of which RE M&A contributed around 22% (31% if included two deals signed between subsidiaries of GULF and TTC waiting for authority approvals).
Section 4: Sector Review | Emerging Sectors for M&A
304
15
563
71 87
314
167
215
144 110
66
10
533
42 72
1 0 1 0 1
0 0 0 0
61
148
10
98
29 15
0 200 400 600
2011 2012 2013 2014 2015 2016 2017 2018 1H2019 1H2018
Total deal value Local SOE Alternative energy Source: FiinGroup
Figure 34: Utility M&A Deal Volume, 2011-1H2019
UTILITIES
Motivation from regulations
Facing natural resource exhaustion and environmental pollution, the Vietnamese government has launched a series of policies to encourage RE investments, making use of immense solar and wind resources. Decision No.11/2017/QĐ-TTG and No.39/2018/QĐ-TTG offered preferential conditions on price, credit, property, and taxes for solar and wind power projects. Especially, all on-grid solar power projects commenced commercial operation before 30 June 2019 will be eligible to sell at 9.35 cents/kWh for 20 years (except some projects in Ninh Thuan given a later deadline).
Meanwhile, inland and offshore wind power will enjoy the preferential prices of US$8.5 and US$9.8 cents/KWh, respectively, for 20 years if connected to the national grid before 01 Nov 2021.
332
4
82
Registered from July 17 -
Dec 18
Completed by
Apr 19 Completed by Jun 19
Upbeat outlook for M&A in the utility sector
Among others, Thai’s investors continuously acquired stakes in solar and wind power projects from Vietnamese owners in 2018 and 1H2019.
• In July 2018, B. Grimm Power PLC -the largest unit of Thailand’s oldest infrastructure developer B.Grimm paid US$34mn for 99.97% stake in Viet Thai solar, thereby owning 55% ordinary shares in Dau Tieng Solar Power Plant (420-MW). In Sep 2018, they bought 80% stake of Hoa Hoi Solar Power Plant (257-MW) for about US$35.2mn from Truong Thanh Vietnam Group (TTVN).
• From Apr 2018 to Feb 2019, Gulf Energy Development PLC (GULF) –Thailand's third-largest energy producer –through its subsidiary Gulf International Holding Pte (GIH) spent roughly US$47.64mn for stakes in 4 solar and wind power projects with a total installed capacity of 460MW. This transaction include 49% and 90% stake respectively in TTCIZ-01 (68.8 MW) and TTCIZ-02 (50 MW) solar power plants in Tay Ninh, and 49% stake in Mekong project in Ben Tre comprising a 30MW solar plant and a 310 MW offshore wind farm. In Apr and Jul 2019, GIH signed shareholder purchase agreements (SPAs) with TTC’s subsidiaries to increase its ownership in the Mekong project and TTCIZ-01 project to 95%
and 90%, respectively.
In response to the given regulatory encouragements, many domestic and foreign investors posted an exciting race in applying for solar power projects and putting them into commercial before the given incentive deadlines.
• By the end of 2018, one and a half year after the Decision No.11 took effect, 332 solar projects with a total capacity of about 22300 MW had been registered. However, only 04 projects connected to the national grid by April 2019, others were postponed due to the operators' lacking capabilities to complete.
• Many operators like TTC Group and Gia Lai Electricity (CEG) have sought solutions from M&A deals with other investors, especially investors from Thailand, Japan and India wanting to expand their business to Vietnam. As a result, by the deadline 30 Jun 2019, 82 project solar power projects connected to the national grid.
Figure 35: Number of Solar Power projects registered and completed
Strategic Moves of Current Active Players
Source: FiinGroup
❑ Thai investors’ imprint in the renewable energy fever
On the other side, domestic M&A was also quite vibrant in 1H2019: In Mar, Gia Lai Electricity acquired 99.94% stake in Truc Son Solar Power Plant for US$9.45mn. In Jun, Sao Mai Group Corp purchased 76.67%
stake in Long An EuroPlast Solar Power JSC at approximately US$1mn.
Vietnam M&A 2019 Research Report| Issue 9 | August 2019
Acquirer Target RE Projects/
capacity (MW) %
acquired Value
(US$ mn) Date Status B. Grimm Power
(Thailand)
Viet Thai Solar Dau Tieng Solar
(420MW) 55% 34.05 July 18 Completed
Phu Yen TTP Hoa Hoi solar
(257MW) 80% 35.02 Sep 18 Completed
Gulf International Holding (GIH) (Thailand)
TTC Green Energy
Investment TTCIZ-01 (69MW) 49% 11.52 April 18 Completed
TTC Energy Development Investment
TTCIZ-02 (50MW) 49% 11.84 May 18 Completed TTC Energy Development
Investment TTCIZ-02 (50 MW) 41% 11.00 Feb 19 Completed
Mekong Wind Power Mekong project:
Wind & solar (340MW)
49% 13.28 Aug 18 Completed Mekong Wind Power Mekong project:
Wind & solar (340MW)
46% 7.00 April 19 Ongoing
TTC Energy Development
Investment TTCIZ-01 (69MW) 41% N/A 4Q19f Ongoing
Abalance Corp-
Fujisolar (Japan) Vietnam Sunergy (VSUN) N/A 100% 3.00 April 18 Completed Adani Green
Energy Ltd (India) Adani Phuoc Minh Wind
Power Adani Phuoc Minh
Wind Power 80% N/A Ongoing
Adani Phuoc Minh Solar
Power Adani Phuoc Minh
Solar Power N/A N/A Ongoing
Gia Lai Electricity (CEG)
Truc Son Solar Power Plant Truc Son Solar (44.4 MW)
N/A 9.45 Mar 19 Completed Sao Mai Group
Corp (Vietnam) Long An EuroPlast Solar
Power Long An EuroPlast
Solar (50) 77% 1 Jun 19 Completed
In 2H2019, utility M&A is expected to continue its ongoing momentum:
• Opportunities from SOE equitisation: EVN aimed to complete divestments from both core and non- core businesses by the end of 2019, offering significant resources for M&A.
• M&A in renewable energy will remain active: 250 projects registered projects not completed and projects commenced commercial operation might become targets for M&A activities. Foreign investors from Thailand, Korea, Japan and Europe are still looking for more stake in solar and wind power projects to enhance their presence in Vietnam. GULF, one of the most active players in 2018 and 1H2019 is rumoured to approach the LNG renewable energy complex in Ninh Thuan province which has a total investment capital of nearly US$8bn. TTC and CEG, among other domestic corporations, have also affirmed that M&A will continue to be their key development strategies.
Source: FiinGroup
Figure 36: Top M&A deals in renewable energy 2018-1H2019 Section 4: Sector Review | Emerging Sectors for M&A
Upbeat outlook for M&A in the utility sector
UTILITIES