good morning everyone welcome to another episode of Vietnam innovators I'm your host how uh today we have a guest his name is tan he's the partner and head of corporate finance at KPMG here in Vietnam and he's here to share some insights about m&a merger and Acquisitions especially during this time of year uh we're and nearing the end of the year but also reflecting on the fact that the macroeconomic conditions in Vietnam have been a bit tough and a lot of companies are exploring ways to merge to acquire to invest uh especially when times are
tough and things are looking ahead in 2024 though at the same time so uh welcome to the show and thank you so much for being here um I think again very timely topic that we're covering here today because uh I myself we're we're startup company and people are talking about the startup winter and how funding has really dried up and that sometimes paves the way for m&a um companies are looking to always grow and um instead of building it themselves they end up buying um and we've seen a flurry of other m&a activity throughout Vietnam
recently as well especially in sectors like healthare um what are your initial thoughts on just the macro landscape before we dive into oh we need an intro first why don't we go there thanks for that then then a macro kind of takes 60-second elevator pitch on what's going on and we'll go into [Applause] [Music] it okay so my name is Tang I'm a partner running the C Finance team at kab Vietnam so my day-to-day job is to have ven companies for fundraising of our investor or the other the other way around that we have you
know for investor to acquire ven commun so sell sign and buy sign okay but we are pretty much doing most of our job uh you know with the local corporates with this companies this is this is what the market where we want to be because again at the end of the day we as a as a firm we have great belief confident in you know in the local core economy of this country believe in the in in the some the fers some the corporate so and then I think that's is where we fight the Str
with our expertise within you know accounting uh tax legal and finance so we have a a whole Str of expertise that we could have uh you know the the local cpets I mean I just look back at what we have done the last five years on average we work on more than 10 projects and then we closed couple dues and then we got nominated as you know and awarded as the M advisers for for 15 years from V are but again I think what we most proud of is just to able to work with the
with the founders like you it's just having growth and you know and being bigger and and finance for for the expansion yeah it's very interesting you mentioned Vietnamese companies to do the Investments and Acquisitions of of other Vietnamese companies I assume Vietnamese company have received funding from investor yeah and then I think one of the interesting trend is that some vist com also seeing m&a or acquisition as a path to growth or in organic growth okay in particular in time like this right if you able to acquire a team or products or a capacity that
you don't have before at a reasonable price to make your advantage just get more more competitive then then is a it's a good way to go so so we see that getting more popular here okay when you say getting more popular where have we started because I I I do agree with you it's not popular I guess you can say because most companies with cash in Vietnam they tend to buy not not not buy even they tend to build themselves um and I I think that kind of mindset comes down to more a traditional business
mindset in terms of like control and governance but by buying you're buying over an asset that you didn't you didn't build right it's it's about capability uh capacity building um so walk me through where we started to where we are now and and what's driving that chain I mean the tral thinking is still okay it's it's easier to build because you know you as a as a management team you build pick the team you pick the investment you you do all the CeX and then it's into the control when you buy something is new culturally
differently and then all the your in also different right so a lot of integration take place it cost maybe sometimes fail so I think the risk is there if you acquires a new company but I think the mindset start to change when we have some pioneer you people like masan or vin group right they start to do a lot of acquisition and then it works so to the business community that acquisition it another way to grow to be honest I think Vietnam it's also a part of the world right when we globally it's nothing new
right it happened in you know for I don't know few hundred years of History it's happened elsewhere and then I think in Vietnam when we start to have a lot Cate like masan or vin group have done to do acquisition and then again the results end results have it add on the system it's makes them stronger then people start to realize okay this is some way that I can you start to think of and then follow that model right so then it's other large column also you started doing so and then the smaller smaller and
then now even the startup also thinking or larg St also thinking okay maybe I don't have to buy the whole company right to buy a product or to buy a team or to buy certain assets but it just save me time because sometime time is an cost that you cannot afford it right what what companies are being acquired right now because you list to companies they're they're quite not only large but they're investing in more Innovative spaces so for instance I I'm familiar with Mison group investing into let's say trusting social it's a very high-tech
data driven company Vin group I'm not as familiar with uh in terms of their acquisition strategy but I assume it's related to their EV business for instance uh which also implies a bit more technology and advanced are we seeing m&a in more of those kind of businesses or more traditional businesses is like real estate company buying real estate company uh is it agricultural company buying agricultural company what kind of m&a is happening right now I think the uh you talk about the local C I think I can give you one example that we on one
of the the advisor so taco right okay acquire iMat so the deal has been a couple years ago right so Taco is famously for the the outdoor business right so they at the same time they start to work on to be their commercial land bank so have a lot of land bank but how you convert that Land Bank into uses so opportunity happened when when emat from Korea sell their U the emat Vietnam business there's a lot of reason but Taco see the opportunities right Taco got land bang so now they're on the after the
acquisition they're on the I think already start to open the forth uh location so when they acquire there's only one location yeah but now now they on the the default uh location already so this mean that's growing so why is good because for taco they got a new business venture outside the the the auto business and then then they can lavish their commercial land B and then you know I think again in Vietnam building and developing anything about land construction it's not that easy I think this is one of the reason why the auto Shel
that iMat is far difficult just to build after the first location it's not easy for them to develop the the second or third location I mean you not might not be able to this question but like who built this steel like of course advisers helped structure it all the fine details are you know everything's bases are all covered uh I assume the founder and the found you know the executive teams of each company somehow um know each other and they initiate those conversations but it sounds like almost too good to happen to to be true
as well like so how so I asked this question because there's a lot of startups or even big corporates their m&a teams are wondering like you know we're doing so much deal flow we can't find anything or startups like oh I'm struggling I need to get acquired like how do you do deal matching in today's society a typical role for an M advisor like us when we got a client right let's say a venomous Community want to fundraising like CB CBC or or let's say I want maybe 20 millions in equity okay help me to
do so or I realize I you are getting old enough you my kid doesn't want to take over the business so probably it's it's time for me just to let this business girl I need to find a home for my business so so they come to people like us and then what we normally start to do is that we look at the business we have to figure out who will likely the buyer for this business for example if you selling a supermarket for example most likely the buyer going to be someone who also running this
kind of business they might be someone already in Vietnam or they maybe someone you know from elsewhere you know from Thailand from Japan from Korea so I think we have to as advisor we have to figure those out and then we work with the the seller to see whether they are ready yet because if you're talking about a sizable deal 20 million 30 million then as a seller you should expect that your potential buyer will have certain requirement or standards right particularly in term of compliance and in term of how you present business to them
because as a buyer they're also responsible for toward you know their B rors their shareholders or some of the complaint that they have to you know follow so I think one of our job is that just to raise up the standard fight the right buas and then we talk about you know valuation and structure got it got it so we have a couple companies that we've listed everything from Taco to masan group to Vin group are there other active m&a sectors right now or companies that you think are worth highlighting today for our audience to
know to to understand what trends are emerging in Vietnam what kind of Acquisitions and mergers are happening I think you also I think I think briefly mentioned earlier that a lot of deals happening around the healthcare space I think healthcare is still ongoing I think we see there a couple of healthcare due are going to the market or is still ongoing and then your education I think we as a firm we also working on a couple of Education uh deals so I think the reason why Healthcare and education are probably the favorite for investor because
the the demand for healthcare and education is kind of resilient right so as a parents you know still want the kid to go to school I think very student normal Asia parents are willing to spend a lot of their budget on the kid ucation so those sector I say resilient in the context that the normal income is kind of shrink down so th those two industries will never change in economic situation that's true particularly Vietnam that I think another factors of in Vietnam why education and health is kind of bit more interesting in the way
that those industry normally dominant by the public but and then the private is maybe on smaller part but somehow given certain constraint on the from the Govern budget so it just open the way for the private sector just you know to gain market share from the public we talked a lot about m& and and kind of large scale micro Trends thank you for sharing and um what funding options does a Vietnamese business have and when do Vietnamese Founders start thinking about m&a so those two questions are together because a lot of um our audience are
startup Founders maybe thinking about starting a company um so maybe you can answer that uh those two questions together I think very typical uh funding option is go to the bank but I think go to bank is not easy particularly when the bank would require you to have asset you collateral then you go to your friends fames you know is for Equity but again when your stop go bigger then I mean your friends may not have enough money to finance you or or your families so I think uh then the two normal channel that you
can think of is just I would say go to for IPO but you have to get to the certain state for IPO and the IPO Market in Vietnam if we look at the the number for last few years the amount raised through IPO in Vietnam probably less than 50 million but if you look at another Channel which is more financial investor privit Equity or VCS the the number we have for 20 21 is about 10 billion so IPO Market versus the private markets so obviously a lot more people go go get funding through the m&a
a The Profit Market do you think that that Trend will persist for the um I think at least for the next few years I think the prefer option is to go through I would say prit Market uh because for IPO Market where the a lot of people going to raise fund through IPO Market there's still a certain constraint in the IPO market right now is in term of capacity to run from raisings on evaluations so there's some constraint but for profit Market the the dry powder of the available fund is is there where's that funding
coming from is it like the Vietnamese company like masan group or is it an is it or um International investors or is it both I think mainly the um the domestic funding versus the offshore funding so I would say dominantly is offshore funding offshore funding we're talking about Finance investor so the proiv equity The Venture capitals and then we're talking about sh investor some of the uh the Korean or the japanesee um um even the social Asia the high investor and what would be the biggest challenges a Vietnamese company faces when undergoing any of these
possible investment opportunities m&a or otherwise um is it corporate governance is it you know I'm sure there's many other challenges but if you could highlight just a few for the audience to take away I would say the the challenge would be would be different among the stakes of your the business so for examp you do small then I being the upper time from investor will be higher let's say maybe they expect less but the bigger your business then you aim at the I would say the Richer investor then the expectation will be higher so I
give you example if you expect to raise 20 million and above then your government had to be complying in term of tax accounting legal should be in a certain standard and then you know you as a construct of the government you B writers and stuff like this or even the your cap table have certain institutional invest already right but you if you start up you raise sital 500,000 or a million then your c will probably only you and a couple FS your accounting may not need to be audited yet so the challenge that because different
expectation expecting different level right so because we normally work on the range of 15 to 20 million deers and above then the challenge for that segment is that we call in Readiness right so most of the time you know particularly private and family business are not ready you for an inst invested to come in Readiness that's an interesting uh word uh do you guys help with that do you so walk me through what Readiness looks like because I have gone through a similar process for my own company in recent times where up until about 2
years ago we had certain protocols that were not either followed like just generally speaking or we just didn't have and a lot of those are now built out but it's taken a lot longer than most people would think you you think oh let's just switch it next month yes but then you have other things like mindset of the team and then working ways of working and people uh what is Readiness in in your world look like so let's say I'm a company that's not ready so how do I become [Applause] [Music] ready I would defy
these Readiness in term of maybe two types the infrastructure again your accounting CR is ready your tax is where ready in compliance is this more compliant and then for example I mean most investor would want to see how the the company running in term of know pnl in terms of your uni economics but your accountant team or your Finance team not able to produce that type information so which means that either your mment accounting or your the way you run a man business probably not right yet at the same time that you look at the
total uh Revenue right the still growth but you might not know exactly where this grow came from or or which products of business are making more money than other products or the other or so this is more like compliance stuff but the uh the mest whether you have openness to work with investor particularly the more traditional business like the family business that been pass over to maybe one generation so the the capacity to work with external investor or in Institutional Investor outside investor is not that easy right so looking at the investor uh point of
view right they might not involve in managing the business so they would rely on the management of the founder to run the business for their interest if they not able to trust the F of the management is it's very difficult for them to to invest the money in let's say a deal gets done between companies especially in the Vietnam context what what factors make for a post merger success story normally investing or putting money in is just one easy part but the the more challenging part is is how you actually as a buyer you integrate
the the the target into the whole ecosystem and then again in this case it's different between if you're just your Finance investor you acquire a minority St and so most of the of the integration probably not happen right so you got to leave the the mement the F just to run the business so and then most of time just purely reporting but this is that easy part but if a different scenario where you as a collaborate or you as a company acquire the whole business of one startup right how you actually integrate that startup into
your ecosystem it's it's it's challenged right so the key success factor for an acquisition I see a couple playbook for those professional buyer they might have an I call PMI post merger integration team already even when they start doing working on the deal to analyze what the you the gap between the the acquire and the target so their job is just to figure out if the deal goes you know go on well and successfully then what kind of things that need to be done just to close the gap so that you know the integration could
be successfully but if you are just local small team you don't have the budget then I think one of the Playbook one of the the practice that I see when we work with a software company SS to an us buyer so I saw the founder that startup and the founder the buyer maintain regular dialogue to talk about integration even during the deal happened right so during that dialogue there's a lot of of honest discussion about you know Synergy what they do together if they you know being one team in products in the market in term
of cost in term of resar so there's a lot of transp discussion and topic around the cost you know the the team the future plan so I saw that it's beond trust beond on certain Foundation that we get on into one team what could be one plus one could be three or four or five and how we do it so I think that one of the I could call the successful because I met with the team just a couple months back and then they very happy with after the de how about how about failures in
in your experience I'm sure you've had maybe a couple in your career but hopefully not too many failure in term of that the seller might after the acquisition the buyer might not get the result that they want when they set out to do the acquisition the the example I mentioned here that so on a foreign investor acquire a Target because um the frame buyer find it difficult to enter Vietnam Market distribution so the Target in Vietnam have a wi network of distribution you know through GT and Mt so the intended idea is just to acquire
this and then use that platform this is platform to channel the buyer products through that channel so after the deal done the revenue created for the buyer not to the level that they expect so this they call it a failure but when we talk to seller I think couple lesson that Cally running a Distributing team by local have required different type of mindset right so basically the the father when he or she still in in Tru they very close to the sales team you know talk to them go to market you know knowing what's going
on in in each of the distribution let say be Supermarket or the vendor right they know exactly what's going on and then they can you know give a motivation push and or have a bit more Demand with the with the sales team but but when a Cate come in everything run by TPI so stuff like that is it changing in the mindset or how you run the business so um my next question kind of uh why is there a need for m&a advisors then um if you know it's not 100% guaranteed success and never works
out 100% of the time that's true please walk us walk us through that yeah right I think the fact that I'm I'm here and and then some of my uh College proved that there's a true need for admit advisors most of the time when we ask why should I hire you as advisor I think I respond is first one of the easiest benefit that we could have you take care of the fundraising or the divestment or the process because you as a operator you should focus on the business every single investor at buy would expect
the company the Target that they acquire have at least stable or growing performing they don't want you know to acquire something that's you know going down right so you as operator of the business should make sure that the Performing being running proper and then you've been if you've been distracted with with that then it's going to be impact you don't want that to happen so that's first thing so we as a professional adviser we can help you a lot with you know taking of that load of you know your responsibility this is first but it's
not the the major benefit I think our job is just to close the gap between the target the ven company and the investor I think particularly in Vietnam context that some of the Vietnamese company I would say first time seller or even they have done that but the the expectation from the investor particularly if you look at lar side like 15 20 million US dollar size right so the the demands or the expectation from the investor uh I would say much higher than the company can managed right so we as advisor we know what they
looking at we know the appeti we know what type information they want so who who do you end up usually representing more the buyer or the seller the seller the seller the vinas company the the companies almost all the time actually I think I would say 80% of the time that we work on the on the seller side I see yeah okay very interesting um let's talk about uh some Trends and and future outlook so we talked about what's going on activity has dropped uh there are still some bright spots you mentioned education and Healthcare
um could you share what's going to happen you think moving forward uh with the m&a market just in let's say the next two years I think was just to mention a little bit on the past I think you know 2021 is a pick 22 drop and 23 drop even you know further so I think we have seen I mean I'm not saying the worst but one of the very challenging market right now volume value this year easily down like 25% or 30% for this last year but it's not just happening in Vietnam but globally so
it's it's a global condition I think macro a big picture why to be honest I think the some of the view right now for 2024 that maybe the macro might not change significantly right maybe a a huge grow going to come back for L sectors probably not that soon yet uh so whether I should wait to do fundraising or to look for start process whether I should now I should do in you know maybe another year so that question they have to address some of the thinking right now say let's do it now because valuation
why probably not change a lot between now and year because Revenue might not be you know growing or pick up a lot so if I do it now get certain cash then I able to grow versus my competitors then okay so let's do it now so from that angle we start to see company you know going to Market talking to us advisor and get our view whether they should be now and at the same time I think the one of the potential buyer investor or or the private Equity or the VC uh particular the private
Equity that they do still have a lot of dry powder the money to invest so so if you are I would call them quality company high quality companies then the chance of fundraising Could Happen already right because Supply Demand right not a lot of let's say two three years ago a lot of company just go out in fundraising but now it's not a lot in good condition so supplies why drop a lot lot a lot right and then on the demand side I think the drop out are still there because they rais a lot of
money in 2021 or 20 20 that driver was still there for the last two years they they focus on their portfolio company right improve them but their job is to invest outside as well not just focused on the portfolio company so it's time for some of them we look at to invest right now but of course they're going to prefer the money will to your know quality [Applause] [Music] deals that leads me to my next question which is about sustainable business practices um I I actually saw a meme on Twitter the other day where like
VCS they're like oh we want more growth and then now they're all like you know scared of it they're they're all wanting demanding profit andow before growth um what's what's your comment about how investors have shifted in preference of that model they're they're kind of shying away from Venture back startups that don't make any cash what's what's your thought about that correct I think that one of the the chain that we can easily see happening in the last I think six month or a year that VC or Finance investor let's say if we introduced the
de that uh startup they make no money they quickly say no right away very easy so that mindsets change then obviously it's impact on the startup for fundraising for Tech and startup we used to work with quite a few we work on ins Tech we on Prop Tech we work on testing right so we work on quite a few startup and back then not many people care a or poti Cas flow but right now all the talk is about economics gas positive bre even if have a lot of startups uh died recently because of that
because of that change yes if you're run R and your cash it's your 6 month or 12 months and then you're not to the point of Break Even creating Revenue enough Revenue last very difficult to raise money so from your discussions with with the investors out there and there's a lot of dry powder and I I have to agree with you so they're having a hard time getting past their investment committees any sort of investment unless they're having showcas the start showcasing some sort of financial resiliency right at the moment I think we working on
the deal right now I think the reason we take on this mandate because we see a clear path to profitability month btics so the gas flow showing positive and then the cost coming down significantly at the same time the the revenue still goes up right so if you an investor you expect a set up four five so that you are profitable it's very difficult for some business not that easy because some sometimes you you know still have to on grow face so for certain investor particular VC I think they understand this but your job as
startup have to show them very clear path to profitability how you do it from you know increase the revenue or lower the cost or focus on one market instead of you know four five markets so it has to be in your mindset that okay I'm going to do this products or this Market because I able to see profitability within one or two years I mean it's like it's like running a normal business you know like this is this normal business exactly before four five year okay whatever yeah it's it's kind of funny if you think
about it that way because and also you know now now there's an issue of scalability right because uh most startups receive money and spend it to to grow but if they're not focused on profitability and they're not growing anymore then that also becomes an issue is that is that true or is a startup to be honest is it not fair to expect both growth and profit at the same time so that's why I'm saying that the company that we just recently take on they able to show both growth two act and then meing improving because
cost now so if you show that let's say in order to grow you know $1 sales you cost another dollar then basically there's no no game right so if you grow let's say 10 10 dollar but cost like you know seven or six and then it's coming down then I think that's how you present to the investor the how you grow but so what what what what do you think is in the future of the/ startup ecosystem what is the future for the the founders in the space right now are should they like batten down
the hatches should they prepare for a long sustained period of no money and thus you need to focus on Survival SL profitability what what's your takeaways given what's going on okay so to be really honest and straightforward that we seen VC funding or success deal drop easily 40% 50% in in Vietnam so just to the fact that that investor particular vcsi have been much more demanding in setup so the advice that we normally have we setup focus on your cost control be laner you have to be laner to survive Maybe doing Bri loan uh with
your existing investor and then come back a few months to show us that the if the number make better sense although to be honest it's difficult so the question is now is just to you have to control your cost to make the the business more sustainable yeah definitely um okay so I'm a Vietnamese entrepreneur I'm playing a little bit of role play I guess I am um I want to explore m&a as a growth strategy for my business perhaps I I'm looking to buy up smaller companies or merge um what what kind of commentary could
you offer uh to Founders looking to do that right now as I explained early oh that part of the channel of the the option for grow is not just you know you build but you can acquire so always think of acquiring another you know business or assess as a way to growth and particularly now I mean obviously some of the ass has become I would say less expensive than before right then so my point here is that sometimes you don't have to pay cash right we see quite a few are talking about just merge two
business as a way to cut cost down so you know you can be creative in term of asking other Stu to your hand as a way to save cost and way to improve the efficiency so we have actually seen that I think it's one quick way just to have both team to survive otherwise you know each of them might be you know might not be survive right so first figure out which Target could be the best fit for your business right and then maybe come to talk to them say why should we you know merge
why should we Joy hand I I see certain value in us being together maybe share clients maybe you know some cost can be reduced again have to have an open mind because I mean to be honest if you are in you know difficulties you people other people also have the same ISU so if you offer them a solution a way out and that benefit both of them so why why not yeah yeah a solution I like that like people will listen if you offer a solution so of course I mean every everybody's you know we're
open to solution that benefit them right right let's say when we work with say venam companies company right when we talk with potential buy we always have to tell them what good for them to acquire this company because nobody want to see invest putting a lot money without benefit right they want to hear some upside from the seller's perspective yes because the seller know best about the market about the company right right okay very good well thank you for sharing that T it's been a pleasure to learn more about your practice ASA leader for KPMG
here in Vietnam and your insights uh about what's going on here in Vietnam um I always have one final question for my guests uh We've have you on a show here today to share about your expertise uh what would you like to know more about so that we can invite a guest onto this show uh perhaps from an industry a company that you've always been curious about or perhaps for either for personal or for uh making your job uh better at your job uh what kind of guest or industry would you like to hear from
it doesn't have to be anyone specific either actually I think we building what do we call a sector expertise within you know K and with the team so I would love to hear uh sector expert I think I just mentioned Healthcare and education if you can ask any of the expert within Healthcare and education okay and then just share about what's going on with the industry whether those industry are actually still growing or or we think it's not riling as we thought you know in the in the spirit of m&a I I think having uh
I actually just met him he's um the group CEO of Thompson hospitals they just acquired f i i met him at isak in district one the other day and he was talking about what they were doing uh this was actually before the acquisition too he was naming it unnamed now it all makes sense so um I'll have to perhaps invite someone like him on to the show to hear about Healthcare and and what's going on there and of course on the education side no one immediately on top of my head regarding m&a at least um
or just in general growth well I know a couple people but um hopefully we'll have them on the show soon thank you so much T thanks so that's another episode of Vietnam innovators thank you so much everyone and see you next week goodbye
