Low labor costs are luring manufacturers and PE firms, including KKR and TPG
Vietnam is a developing, mainly agrarian country in Southeast Asia that is moving from a centrally-planned economy to a market economy. Vietnamese is the official language. English is spoken in tourist destinations. Political control rests with the Communist Party. In 1986, the Vietnam government started making economic and political reforms. By 2000, it had established diplomatic relations with most nations. GDP is growing at about 5 percent to $138 billion, and the country's population is 92 million.
Dealmaking in Vietnam is gaining momentum as well. "There's been a lot of M&A activity, because manufacturing is being lured to Vietnam from China and other Asian countries experiencing wage inflation," says David Do (pictured), a managing director with VI (Vietnam Investments) Group, a private equity firm founded in 2007 and headquartered in Ho Chi Minh City (formerly Saigon). The firm is investing out of its $175 million second fund, which was raised in 2012.
Do was born in Vietnam and raised in Australia, and he earned his MBA from Harvard. He worked at several U.S. companies, including Microsoft (Nasdaq: MSFT), where he worked on M&A. After founding a business in China that he sold to eBay Inc. (Nasdaq: EBAY), Do was ready to retire, but then became intrigued by the opportunities in his homeland and decided to head back to Vietnam. VI Group has invested in companies in the manufacturing, logistics and tourism sectors.
"The demographics are favorable," Do enthuses. "The country has a large, young population, growing middle class, low cost of labor, and food processing and manufacturing facilities located next to ports."
"Because of the young population, it is hard to find experienced management," says Do. "You have to be a very hands-on investor to do well in the country."
Since the beginning of 2012, there have been more than 75 M&A deals completed in the country. However, U.S. acquirers have participated in only four. KKR holds the distinction of completing the largest investment on record in Vietnam in January 2013. The New York private equity firm agreed to invest $200 million in Masan Consumer Corp., a sauce maker based in Ho Chi Minh City. KKR had already invested $159 million in the company in 2011.
Other U.S. private equity firms, such as TPG and Citi Capital Advisors, have completed deals in the country as well. Corporate buyers are also making plays in the country. In March, United Parcel Service (NYSE: UPS), headquartered in Atlanta, acquired a 49 percent stake of state-owned Vietnam Posts & Telecommunications Corp. In 2012, Abbott Laboratories (NYSE: ABT), based in Abbott Park, Ill., acquired 3A Nutrition, a distributor of nutrition products, based in Ho Chi Minh City.
With a growing economy, Vietnam is expected to continue to garner investment and interest from U.S. investors.