Vietnam’s Drive Towards Industrialisation and the Role of M&A
Vietnam’s ambition to become an industrialised nation by 2045 is heavily reliant on international economic cooperation. A crucial component of this integration into global value chains is Mergers and Acquisitions (M&A). Vietnam is now poised for a new M&A cycle, driven by recent reforms that are beginning to demonstrate their impact.
Policy Reforms and Their Combined Impact
Over the past year, Vietnam has implemented a series of reforms that collectively lay a robust foundation for a more vibrant M&A landscape. The significance of these reforms lies not in their individual impact, but in their combined effect. The Politburo has identified four key pillars: digital transformation, private sector development, international integration, and legislative process improvements. These pillars represent a unified effort to escape the middle-income trap and foster a more competitive and innovation-driven economy.
By October of this year, the Politburo had adopted seven strategic resolutions. Official reports indicate that the National Assembly has enacted 38 laws and approximately 20 resolutions. Additionally, the government has issued around 288 decrees and 433 resolutions aimed at addressing structural bottlenecks. These initiatives reflect a commitment to streamlining processes and removing obstacles to economic growth.
Furthermore, plans are underway to reduce or simplify approximately 2,000 administrative procedures and around 2,300 business conditions. The implementation of new reciprocal tax policies and double taxation agreements is also contributing to a reduction in friction for cross-border M&A transactions. These measures aim to create a more attractive and efficient environment for foreign investors.
Vietnam’s Appeal in a Time of Uncertainty
Foreign investors are increasingly recognising these positive changes. Vietnam’s “bamboo diplomacy” helps maintain macroeconomic stability and predictability, making the country an appealing investment destination, especially amidst global geopolitical uncertainty. This stability bolsters confidence among institutional, strategic, and private investors when they evaluate Vietnam’s M&A prospects.
Vietnam is undergoing a strategic structural shift, evolving from a country that attracts foreign investment solely due to its low-cost advantage to a destination sought after for its dynamic market and status as a top sustainable growth story in Asia. This shift is crucial for attracting higher-value investments and fostering long-term economic development.
Shifting Dynamics in the M&A Landscape
The next M&A cycle will be defined not by transaction volume or scale, but by the depth of industry structure and the impact on the country’s long-term competitiveness. This suggests a move towards more strategic and transformative deals that contribute to overall economic growth and innovation.
A significant shift is also occurring at the micro-level, particularly in the mindset of the new generation of Vietnamese entrepreneurs. These entrepreneurs, often educated abroad and possessing a modern education, view M&A as a strategic tool for growth, succession planning, and asset diversification.
M&A consulting experience indicates that approximately 60% of small and medium-sized enterprise owners are actively seeking strategic partners. This trend is driven by a growing recognition of the importance of scale and professional management in the era of globalisation.
However, foreign investors should be aware of certain behavioural biases that persist in the M&A sector. For instance, founders often have inflated valuation expectations, influenced by media coverage of mega-deals. Bridging this valuation gap requires not only financial modelling but also cultural intelligence and strong operational and strategic management capabilities.
Promising Sectors for International M&A
Given the current positive policy momentum, several sectors are particularly attractive for international M&A activity:
Financial Services: Strengthening the corporate bond and stock markets will stimulate demand for acquisition-financing instruments such as private credit, leveraged loans, mezzanine finance, and venture capital. Regional private credit funds, particularly from Singapore, South Korea, and Japan, are likely to enter the Vietnamese market to address existing financing gaps and facilitate larger transactions.
Healthcare and Life Sciences: These sectors remain highly attractive. Vietnam’s ageing population, expanding middle class, and increasing public-private partnerships create opportunities for international investment. Niche segments, such as long-term care for foreign retirees, could also emerge with appropriate regulatory support.
High-Tech and Digital Transformation: Vietnam aims to strengthen its capabilities in semiconductors, AI, cloud computing, and cybersecurity, attracting substantial investment in these areas.
Renewable Energy: This sector continues to offer strong potential. Regulatory adjustments under the Power Development Plan VIII, rising investor interest in solar and wind projects, and emerging opportunities in energy storage and transmission will support future transactions once the regulatory framework stabilises.
Education and Edtech: Vietnam’s middle class is demanding higher-quality education, international programmes, and more practical vocational training. Several German institutions are exploring opportunities, and meaningful M&A activity is anticipated in this field.
Emerging Trends in M&A
The high-tech and healthcare industries are poised to be particularly promising in the upcoming M&A cycle. Within these sectors, there are significant shifting trends reflected in deal execution. One such trend is “acqui-hiring,” where larger companies acquire smaller technology firms not for their revenue but for their engineering teams and niche technologies. This trend is expected to accelerate as the competition for talent in the technology and healthcare sectors intensifies.
In contrast, the platform consolidation M&A trend will reshape sectors such as retail, logistics, and private healthcare. These sectors are often fragmented, comprising numerous small-scale companies. M&A activity in these areas is driven by the need to build platforms, streamline operations, and establish market leadership. Private equity funds are expected to play a crucial role, providing both capital and operational expertise to execute complex mergers. The recent wave of hospital chain acquisitions is a clear indication of this trend.
The Importance of Institutional Quality
To advance its industrialisation agenda, Vietnam will increasingly rely on indirect investment flows, particularly M&A, alongside traditional foreign direct investment. Strengthening institutional quality, particularly transparency and capital-market governance, will further enhance Vietnam’s M&A climate.
Policies on IFRS standards adoption, improved disclosure standards, and the development of rating systems reduce the risk premium for foreign investors. Debt-market reforms will facilitate acquisition financing and attract private credit funds.
The planned financial hubs in Ho Chi Minh City and Danang will help expand the ecosystem of legal, advisory, auditing, and valuation services required for complex cross-border deals. These improvements will enhance regulatory predictability, strengthen exit opportunities, and ultimately increase Vietnam’s attractiveness for international M&A.
Building a Solid Ecosystem for M&A
Vietnam is in a phase of change, with institutional strengthening, behavioural changes among domestic companies, and global capital trends converging. The next wave of M&A will be more strategic, professional, and international, provided that regulatory transparency keeps pace with market dynamics.
For Vietnam to truly unlock capital flows from foreign investors through the M&A channel, the government needs to focus on building a solid ecosystem supported by three main pillars:
A Deeper Pool of Intermediaries: To develop the M&A value chain, there’s a need for more specialised sales advisors to assist Vietnamese companies in preparing for sale, more M&A law firms with extensive transaction experience, and more independent valuation experts to help narrow the valuation gap with reliable data-driven analysis.
Developing Domestic Capital Markets: Developing the domestic corporate bond market and private credit funds will enable more leveraged buyouts, allowing financial sponsors to generate returns through financial engineering in addition to improving operations, and providing alternative financing structures beyond pure equity.
Expertise in Post-Merger Integration: Success in M&A transactions depends not only on the value at the time of closing but also on the ability to create synergy value over the subsequent 3-5 years. Building expertise in creating this value is a service currently lacking in the Vietnamese market.
The Vietnamese government’s push for digitalisation is a significant positive development that contributes to the transparency of the Vietnamese M&A market. The recent aggressive implementation of mandatory electronic invoices, centralised with the tax authority’s database, is a turning point for M&A financial due diligence. While it does not completely eliminate the risk of the due diligence process, it provides a reliable verification platform that was previously absent. This is also the beginning of a long-term roadmap for IFRS adoption and the Vietnamese government’s commitment to enhancing financial transparency, which will certainly strengthen investor confidence.
In conclusion, while the government has laid the strategic foundation and is making significant progress on financial transparency, the next wave of M&A will require a dual focus: respecting the overall strategic vision and implementing it systematically and effectively.
