Vietnam remains attractive regional destination for private equity investment

VOV/Grant Thornton

Vietnam remains an attractive destination for private equity investment flow in Southeast Asia, according to the latest issue of Vietnam Private Equity Investment Outlook 2019 released by Grant Thornton.

Vietnam remains an attractive destination for private equity investment flow in Southeast Asia

With the ongoing US-China Trade War threatening the established global value chain, private equity investors are seeking new opportunities in Southeast Asia, especially the hotspot neigbouring country – Vietnam.

Venture capital and private equity investment in the nation soared to record levels in 2018 and promises to enjoy vast potential for growth in the coming years.

The leading destination in the Southeast Asian region

The respondents to the survey represent a wide range of individuals and institutions currently working in the private equity investment sector. In total, 23% are made up of corporate investors and investment funds, 29% from advisory firms, 29% from private companies, 9% from securities firms, and 10% are made up from other sources.

According to investors, the country is one of the most attractive investment destinations in ASEAN for private equity investment.

Technology remains one of the nation’s most appealing sectors, especially for e-commerce and Fintech, whilst other sectors such as education, healthcare, green energy, and logistics are expected to enjoy robust growth in the future.

In light of the emergence of Vietnam as a serious investment destination, Grant Thornton has made recommendations for a change in value creation approach as the era of surfing on macro growth to drive returns has passed.

In the view of Grant Thornton, the new era of value enhancement requires private equity investors to develop new capabilities in order to fundamentally shift their value creation approach. This can be done through focusing portfolios on commercial excellence, making the most of digital technologies, excelling at talent management, and upgrading corporate governance.           

The report pointed out that up to 70% of private equity investors are facing challenges in terms of finding the right talent capable of delivering on a value creation plan. Private equity firms are struggling to make early, high-impact talent decisions, both in the C-suite and in other mission-critical roles.

In contrast to the perception of investors, only 15% of respondents believe that private equity investors can help improve their current management team.

The report found that more than 70% of private companies are confident when it comes to their corporate governance quality. However, in the view of experts, corporate governance in the country remains poor. Corporate governance among Vietnamese firms is in the early stages of development and there is still a long way to go before an adequate standard is reached.

 A wealth of opportunities for private equity investors

Investors have concluded that robust expansion of the start-up ecosystem in 2018, which tripled in value compared to 2017 with USD889 million in investment, has made Vietnam one of the most dynamic investment destinations, alongside Singapore, in all of Southeast Asia.

Singapore, Vietnam, Indonesia, and Malaysia topped ASEAN Private Equity value and volume last year, according to the Global M&A Review 2018 which was conducted by the Bureau Van Dijk, a Moody’s Analytics Company.

In 2018, the domestic private equity investment market experienced a thriving year with 38 deals reaching a total of USD1.609 billion. This figure represents a new record for the decade whilst simultaneously 27 deals were poured into start-up firms.

Private equity investments in startups made up 71% of the total transaction number, increasing by 56% in comparison to 2017.

Some 34% of investors view Vietnam as the most attractive investment destination among ASEAN nations.

The results of Grant Thornton’s survey show that the top six most attractive private equity investment sectors nationally in the next 12 months will include Fintech, education, green and renewable energy, healthcare and pharmaceuticals, e-commerce, as well as transportation and logistics.

The speed of the equitisation process of state-owned enterprises is expected to increase in the year ahead after experiencing a slowdown in 2018. This could potentially bring in a large pool of investment opportunities in 2020.

According to economists, the private sector in 2019 is seen as one of the four key drivers of the country’s economy, particularly when factoring in the strong development of start-up companies. Technology start-ups are leading the way with Fintech, e-commerce, e-learning, and travel tech. There are expected to be more policies and mechanisms coming into play that further aid the development of the private sector.

In addition, the economy will also enjoy the advantages of the recently signed and soon to be effective Free Trade Agreements (FTAs). Most notable is the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, known as the CPTPP, the EU-Vietnam Free Trade Agreement, also known as the EVFTA, and the ASEAN-Hong Kong FTA.

These FTAs are expected to promote processing and export activities nationwide, as well as diversifying imported materials.

To read the full report, please click here