Vietnam valuations at 'nosebleed levels' - AVCJ Forum

“Vietnam was attractive for us because the foreign exchange was stable and that stems from social and political stability, growth and fiscal management. It was not saturated with PE investors and you could find gems in the rough. The window of lower competition for good assets is shrinking if not gone,” Pete Vo, a managing director at CVC Capital Partners told the AVCJ Vietnam Forum.

Even though the HOSE VN-Index has corrected by around 15% in recent months, the markets are still feeling the effects of a bull run that took the index from 570 points at the start of 2016 to 1,200 points in early April. “The current public markets environment is a concern for us – it means private markets valuation are at nosebleed levels for some deals,” Vo added.

Vietnam’s robust growth and attractive economic fundamentals, as well as its relative stability in recent years, have prompted a rise in interest among private equity investors. Paul DiGiacomo, a managing director with BDA Partners, also sees the availability of assets as a factor. There is not as much local capital competing for deals as in other markets in Southeast Asia and less of a stigma about selling to private equity.

The supply of assets varies by segment – more pan-regional GPs are looking for deals in Vietnam and not that many investable and accessible companies are large enough to meet minimum check size requirements – while valuations across the board are on an upward trend. “Has the exuberance run too far in terms of valuation? Pricing on private deals is several turns higher than it was two or three years ago,” DiGiacomo added.

While agreeing that valuations are a challenge, Andy Ho, CIO at VinaCapital, noted that it is important to look at every aspect of a situation, including downside protection and revenue goals. For example, if a company is seeking a valuation of 20x earnings but is capable of delivering 40% growth over the next three years, VinaCapital might consider it – provided it had drag-along rights to secure an exit.

“We have seen businesses that are growing 50%, 80%, 90% a year. The banks in Vietnam have seen 40-80% growth,” Ho said. “Is that sustainable over the next two to three years - probably not, but you can still average it down and justify some of the valuations.”

For CVC, the strategy is to identify attractive assets before sell-side advisors have been appointed to initiate auctions. Vo emphasized the importance of investors “pre-selling” themselves to companies based on value creation capabilities, track record, and global network. Success hinges on the ultimate motivations of the seller. “Are they just there to get the money or do they want a partner?” Vo said.

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

• Topics
• Southeast Asia
• Expansion
• Buyouts
• Vietnam
• CVC Capital Partners
• VinaCapital