Introduction
Vietnam has achieved remarkable economic growth in recent years, with the GDP growth rate for 2020 projected at 2.8% by the World Bank. Despite the impact of the COVID-19 pandemic, Vietnam maintains positive growth momentum. In recent years, the country has leveraged its abundant human resources to become an offshore base for IT companies and deepen its ties with Japanese industries through technical intern training programs. Anticipating the growing domestic demand, major Japanese consumer goods and retail companies are also showing keen interest.
In this article, we explore the landscape of cross-border M&A by Japanese companies targeting Vietnam, highlighting five recent cases to elucidate industry trends and practical developments.
Case 1: Taisho Pharmaceutical Holdings Acquires DHG, a Pharmaceutical Company in Vietnam (Announced in February 2019)
[Overview]
Taisho Pharmaceutical Holdings acquired additional shares of Duoc Hau Giang Pharmaceutical JSC (DHG), a pharmaceutical company in Vietnam, and turned it into a subsidiary. Through a tender offer (TOB), Taisho increased its ownership stake from 34.99% to 56.69%. The acquisition price was approximately 16 billion yen, making it the largest M&A deal by a Japanese pharmaceutical manufacturer in Southeast Asia.
[Perspective]
Taisho Pharmaceutical Holdings had formed a capital alliance with DHG in May 2016 and had been involved in management as a minority shareholder with a 34.99% stake. However, by further strengthening the collaboration between the two companies and deepening involvement through the acquisition of management control, Taisho aimed to expand its pharmaceutical business in the Asian market.
In this regard, it is not uncommon for Japanese companies to pursue majority ownership or 100% acquisition from the outset. However, considering that reputable companies have sound management and financials, and gradual "attraction = decision-making" is key, and given the high hurdles of implementing foreign management from Day 1, the fact that Taisho participated in management as a minority shareholder and increased its ownership ratio three years later while retaining local partners as minority shareholders is suggestive and insightful.
Case 2: Kyoei Steel Acquires Vietnam Italy Steel (VIS), a Vietnamese Steel Manufacturer (Announced in April 2018)
[Overview]
On the 16th, Kyoei Steel acquired Vietnam Italy Steel Joint Stock Company (VIS), a steel company in Vietnam, and turned it into a subsidiary. By purchasing additional shares, Kyoei Steel increased its ownership stake from 20% to 65%, with the acquisition price reported at 5.4 billion yen. Established in 2002, VIS specializes in the production of bar steel and wire rods. While Kyoei Steel had participated in its capital since November 2017, it now achieved majority ownership.
[Perspective]
Kyoei Steel has been engaging in M&A activities at an annual pace since 2016, including the acquisition of BD Vinton in the United States in 2016 and the purchase of the electric furnace business of Moly-Cop AltaSteel Ltd. (MC AltaSteel) in Canada in February 2020. These actions align with the company's medium-term management plan, "Quality Up 2020," which includes the policy of increasing shipment volumes and profitability of overseas steel business. However, underlying this strategy is the challenge of the shrinking domestic steel market and the emergence of Asian newcomers. Therefore, Kyoei Steel is implementing M&A as a growth strategy to survive in the global market, aiming to establish a trilateral electric furnace dominance between Japan, North America, and ASEAN.
Kyoei Steel had already commenced steel business in Vietnam through its Vietnamese subsidiary, Kyoei Steel Vietnam Company (KSVC), since 2012. However, this recent M&A can be seen as a means to further the growth strategy of ASEAN business in the future.
Case 3: UT Group <2146> Acquires Green Speed Joint Stock Company, a Vietnamese Manpower Dispatch Company (Announced in February 2020)
[Overview]
UT Group acquired 51% of the shares of Green Speed Joint Stock Company (GS), a Vietnamese manpower dispatch company based in Binh Duong Province, and turned it into a subsidiary. The acquisition was completed in mid-April 2020. The acquisition price was approximately 1.198 billion yen at the time of acquisition, but it could increase to a maximum of approximately 1.767 billion yen depending on the subsequent performance. Green Speed's major subsidiary, Green Speed, dispatches over 13,000 people to manufacturing companies and others in Vietnam, with 30 hiring bases nationwide.
[Perspective]
Vietnam has become a prominent manufacturing base for Japanese and Korean companies, replacing China, leading to increased demand for manpower dispatch services. UT Group operates a business in Japan handling the management of foreign technical intern trainees for the manufacturing industry. As of June 2019, out of approximately 370,000 intern trainees nationwide, over half, about 190,000, are Vietnamese. The Vietnamese labor market, dominated by young people with an average age of around 30, expected to reach 100 million by 2025, is drawing attention from various sectors.
Through this M&A, UT Group gains access to the Vietnamese labor market through the network held by GS, establishing a solid system to provide services to Vietnamese subsidiaries of existing clients in Japan.
In terms of scheme, price adjustments are anticipated after the acquisition, likely using the earn-out method. Earn-out is a provision that adjusts the price based on specific indicators or conditions after the acquisition criteria. It is used in cases where there is disagreement between the parties in estimating future values that form the basis of stock price calculations.
Case 4: Aizawa Securities <8708> Acquires Securities Company in Vietnam (Announced in January 2018)
[Overview]
Aizawa Securities has decided to acquire an additional 80.5% of the shares of Japan Securities Incorporated (JSI), a securities company in Hanoi, Vietnam, and turn it into a subsidiary (ownership ratio of 95%). The acquisition price was not disclosed, and the acquisition will be completed after approval from the local financial authorities.
Since starting stock trading in the stock markets of Hong Kong, South Korea, and Taiwan in 2000, Aizawa Securities has been expanding its coverage of Asian stocks.
[Perspective]
With the activation of the securities market, Vietnam has attracted attention from Japanese investors, and regulations in the securities sector are also being relaxed. However, it is not realistic for foreign companies to independently establish raw market information and networks in Vietnam.
This M&A is the first case of a Japanese company acquiring a securities company in Vietnam. Aizawa Securities started handling Vietnamese stocks following its capital participation in JSI when it was established in 2009. However, through this acquisition of JSI, Aizawa Securities has gained a strong management resource to differentiate its services from those of other industry players and to gain a competitive edge in handling Vietnamese stocks.
Case 5: Earth Corporation, Leading Insecticide Company, Acquires Household Products Manufacturer and Distributor in Vietnam (Announced in March 2017)
[Overview]
Earth Corporation acquired all the shares of A My Gia Joint Stock Company (revenue: 1.7 billion yen, operating profit: 200 million yen, net assets: 200 million yen), a household products manufacturer and distributor in Vietnam, for 890 million yen and turned it into a subsidiary. The scheduled execution date for the transfer of shares was May 2017.
A My Gia Joint Stock Company, founded in 2003, has been engaged in the manufacturing and distribution of household products, primarily household detergents and insecticides, in Vietnam.
[Perspective]
Earth Corporation boasts the top position in the domestic insecticide market. In the Southeast Asian market, it already has existing bases in Thailand and ranks second in the market share of insect care products in that country, according to recent surveys.
Through this transaction, Earth Corporation aims to develop brands targeting middle- to high-income households, primarily in northern Vietnam. While the acquisition price of 8.9 billion yen for a company with a revenue of 1.7 billion yen may seem considerably high from the perspective of practitioners, it can be seen as an investment anticipating the growth of the Vietnamese market, which is expected to expand at a GDP growth rate of around 7%.
Building brand awareness and distribution networks in the consumer goods sector from scratch requires a considerable amount of time, making M&A an effective strategy to "buy time" for strategic execution. Additionally, since it is a one-time transaction, offering a higher price than market expectations can also be a valid business decision. The localization know-how cultivated in neighbouring Thailand likely played a significant role in supporting this decision.
Have you been able to gain a deeper understanding of the M&A market and investment environment in Vietnam? Please note that this document primarily aims to provide an overview for your understanding. For specific inquiries, our representatives will be happy to assist you directly. Please feel free to contact us.
Thank you for reading until the end.
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