‘sag, 843 Po Vietnamese private equty firms might deploy more captain 2024 - Nikkei Asia DEALSTREETASIA Vietnamese private equity firms might deploy more capital in 2024 ‘Slowdown this year reflects more selective global trends in assessing deals The Ho Chi Minh city skyline. The IMF projects Vietnam to be one of the 20 fastest-growing economies globally in 2024, © Getty Images NGUYEN THI BICH NGOC, DealStrectAsia December 20, 2023 14:19 JST ity slowed in 2023 as t some PE firms Try 1 month for $4 hitps:asia.nikkel.com’Spotight’DealStrectAsia/Vietnamese- private-equity -frms-might-deploy-more-capitaln-2024 15‘aaa, 5:43 Pa Vietnamese private equity firms might deploy more captain 2028 -Nikkei Asia In their heyday, Vietnam-focused PE firms made two to three new investments a year. In 2023, only Excelsior Capital Vietnam Partners and VinaCapital's Vietnam Opportunity Fund have made one new investment each, while Mekong Capital has done two follow-on transactions in current portfolio companies. Other private equity managers in the market include VI Group, PENM Partners, Asia Business Builders (ABB), and SSI Asset Management. “Investors are generally more selective now and are taking a more careful look at businesses with high burn rates or negative cash flows,” Lan Anh Do, a partner at ABB, told DealStreetAsia. ABB has been focusing on raising its second fund and will start deploying capital soon, having secured a first close. As the cost of capital has significantly gone up, fueled by interest rate hikes, investors prefer companies with solid financial sustainability. "Given how the bond market changed in Vietnam in 2023, we were quite hesitant to look at any business that needed substantial debt to sustain their growth," said Chad Ovel, a partner at Mekong Capital. Mekong Capital is in its fifth PE fund, which can write checks for about three more deals. The data above looks at deals in brick-and-mortar areas, as intertwinement between PE and tech did not happen this year with PE investors taking a step back from risky venture capital investments. The technology, media and communications sector was at the bottom of the list of attractive sectors for the local PE industry, per a Grant Thornton Vietnam report in August 2023. "Deals available to the market are plenty, but only a handful are quality opportunities,” the ABB's Do said, explaining that companies’ cash flows were impacted by macroeconomic headwinds. "A lot of plans were broken, and performance did not match the expectation of both entrepreneurs and investors." hitps:fasia nickel comSpotigh)DealStreetAsiaVietnamese-prvate-equiy-frms-night-deploy-more-captakin-2024 215‘aaa, 5:43 Pa Vietnamese private equity firms might deploy more captain 2028 -Nikkei Asia Local PE firms find their sweet spot in transactions below $50 million, where, according to Ovel, a lot of businesses were "not quite there” in terms of having healthy and robust unit economics. Fewer deals in the market can also be explained by the decline in valuations, causing many companies to delay their fundraising, Grant Thornton Vietnam said in its survey report that 58% of its PE respondents expect further regression in valuations next year due to the increased cost of capital and slower growth expectations. It was a different story at the big-ticket end of Vietnam's PE market, where Growtheum Capital Partners invested $100 million in IDP, Bain Capital injected $250 million in Masan, KKR participated in EQuest's $120 million financing round and ESR purchased a $208 million stake in BW Industrial] Masan marked the first-ever deal in Vietnam by U.S.-based Bain Capital, and local investors expect even more interest from American outfits -- from PE shops and hedge funds to multinational companies -- after the countries elevated their relationship to a comprehensive strategic partnership. In addition to the announced investments, DealStreetAsia exclusively reported that KKR is investing in Medical Saigon Group and Warburg Pincus is mulling a deal with XuyenA Hospital. Mekong Capital's Ovel observed that from the sell side, there are more generational succession deals in large check sizes. This type of deal "provides more depth to the market, as more large-cap PE firms are taking a look at Vietnam, which maybe did not exist on a regular basis several years ago," he said. Corporate buyers have also continued to be active, with a lot of them taking the financial investment rather than the M&A route. For example, Alibaba's international business recently invested in Hasaki, a beauty product and personal care chain, while Japanese trading house Marubeni, through a private equity unit established last year, funded AIG Asia Ingredients Corp. Marubeni Growth Capital, which is focused on Southeast Asia investments, sees Vietnam as one of the region's most important markets. hitps:fasia nickel comSpotigh)DealStreetAsiaVietnamese-prvate-equiy-frms-night-deploy-more-captakin-2024 315‘aaa, 5:43 Pa Vietnamese private equity firms might deploy more captain 2028 -Nikkei Asia Bharat Sarma, president and senior managing director of Marubeni Growth Capital, mentioned Vietnam's large manufacturing sector, export-oriented economy, relatively advanced industrialization and large labor force, saying these attributes fit what Japanese corporations are looking for. Ovel is bullish that 2024 will be a good year for local fund deployment, with economic headwinds expected to taper and local firms entering the market to raise new funds. While Mekong Enterprise Fund IV, Mekong Capital's active vehicle, is expected to continue deployment in the first half of next year, the firm is reportedly raising a $150 million climate strategy. ABB has closed $52 million out of its $100 million target for its Fund II, while Excelsior cond fund and PENM Partners has been trying to raise its fifth fund, per DealStreetAsia's previous reports. Capital Vietnam Partners has launched its s For VinaCapital, even as its PE investment pace in 2023 slowed down compared to previous years, Chief Investment Officer Andy Ho said during the firm's recent investor conference that VinaCapital will continue to spend the bulk of its time looking at private opportunities. “The long term remains bullish,” the ABB's Do said. "Vietnam has what matters to be ready once the economy recovers. ‘The International Monetary Fund has projected Vietnam to be one of the world’s 20 fastest-growing economies in 2024, with an anticipated GDP spurt of 5.8%, an improvement from 4.7% estimated for 2023. Ho, meanwhile, has a strong conviction for Vietnam's long-term trajectory, though for the next 12 months, if global geopolitical events drag on, he wonders if the interest in investing in developing markets like Vietnam might wane. Foreign exchange is one of the biggest concerns for him. "The dong has devalued roughly 3% against the U.S. dollar,” he said. "A lot of the [macroeconomic] events may cause the earnings growth projection to not come to fruition.” For the original story from DealStreetAsia, click here. hitps:fasia nickel comSpotigh)DealStreetAsiaVietnamese-prvate-equiy-frms-night-deploy-more-captakin-2024 46‘aaa, 5:43 Pa Vietnamese private equity firms might deploy more captain 2028 -Nikkei Asia DealStreetAsia is a financial news site based in Singapore that focuses on private equity, venture capital and corporate investment activity in Asia, especially Southeast Asia, India and greater China. Nikkei owns a majority stake in the company. 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