Seminar on "Digital transformation and M&A trends in the technology sector in 2022" (Photo itcnews.vietnamnet.vn) Nguyen Cong Ai, deputy director of KPMG Vietnam, noted that technology sectorwas becoming more appealing to foreign investors. In 2021, technology M&Adoubled in transaction volume and tripled in value, reaching about 963 million USDby October.
Sub-sectors that have been attracting strong investment inflows includee-commerce, fintech, ed-tech, logistics and digital transformation.
Tiki has sucessfully raised 258 million USD in a funding round led by AIAInsurance; Sky Mavis 152 million USD by Andreessen Horowit; and Momo 100million USD by Warburg Pincus.
“Foreign investors are showing great interest in Vietnam’s technology sector.Recently, we have been receiving an increasing number of requests from Koreanand Japanese investors who are interested in Vietnam’s internet economy,fintech, edtech and media,” Ai added.
The deputy director believes foreign interest in technology can be mainlyattributed to favourable policies of Vietnamese Government on tech startups.Another contributing factor is the quality of human resources, which has beenimproving substantially in recent years.
Nguyen Viet Khoi, director of Institute of Skills Education and CreativeIntelligence, said Vietnam’s digital economy had been forging ahead over thepast few years. Rapid growth could be observed in information technology (IT),telecoms, e-commerce and startup ecosystems.
Remarkably, 5,600 new digital firms, with nearly one million personnel, wereestablished last year, raising the total number of digital firms to over 64,000and marking a 9 percent growth in the sector.
Such a steady expansion has allowed the technology market to draw in massiveforeign investment and multiply M&A transactions.
However, digital firms in Vietnam are still at an early stage. A majority ofthem are startups with original ideas but have trouble with management andstrategic planning.
Meanwhile, investors with deep pockets prefer putting money in firms that candraw up a detailed plan to realise their ideas.
This mismatch between investors and investees is causing a setback for M&Agrowth.
To deal with the setback, Khoi said the grow-at-all-cost model wasindispensable. Additionally, trading floors for startups, which are similar toChiNext (China), KONEX (Korea) or NASDAQ (US), could be developed to facilitatestartup funding.
The director also recommended the Government launch a regulatory sandbox toprovide digital firms with testing grounds for their technology innovations.
Regarding M&A in IT, Nguyen Thanh Tuyen, deputy director of the Ministry ofInformation and Communications' Department of Information Technology, revealedthere was no significant M&A in digital technology in Vietnam prior to2015.
It was between 2015 and 2018 that first major transactions in the sector beganto emerge, notably VNG seizing a 38 percent stake in Tiki and the buyout ofMundo Reader by Vingroup.
From 2019 to 2021, Vietnam saw a sharp upturn in M&A with many noteworthydeals including Vision Fund and GIC Fund pouring 300 million USD to VNPay,Temasek’s investment of 100 million USD to Scommerce, and the buyout of Baseplatform by FPT.
As the COVID-19 pandemic has been paving the way for the widespread applicationof digital technoloy, M&A in this sector will continue to boom in the nextseveral years. Sub-sectors that are likely to become investment magnets includee-commerce and fintech.
Despite the positive outlook for M&A, Tuyen said that most products andservices of Vietnam’s tech firms only targeted the domestic market. Few seekcustomers abroad.
Such a narrow market reach is a setback for the rapid growth of M&A.
Ho Phi An, chief executive officer of EI Industrial, believes the rapid growthof M&A in technology is good news for the sector. Through M&A, digitalfirms will be able to tap into abundant sources of foreign funds.
The downside is that firms are more vulnerable to hostile takeovers as soon asthey are open to M&A. However, growth always comes at a cost, so the riskof a takeover should not be a matter of concern.
“We should not be concerned with hostile takeovers when we participate ininternational markets. It’s quite normal for a firm to be taken over if it isnot good enough,” An added.
Bui Thu Thuy, deputy director of Enterprise Development Agency under the Ministryof Planning and Investment, acknowledged that the legislative process in Vietnamwas quite lengthy. It takes 5-7 years to develop a fully-fledged legalframework, so Government policies normally cannot keep up with the pace ofchange.
Additionally, the practice in some countries that financially supports 100 percentof startups' initial costs or accept a failure risk of 20 percent is unsuitablefor Vietnam currently.
"Our current financial situation does not allow such a practice and wecannot accept such a high risk either," Thuy said.
The deputy director said the authority would come up with favourable policiesfor digital firms and startups, but financial support would require cooperationbetween agencies and assocciations across the board./.
VNA
