MSN's history of unique M&A
MSN's history of unique M&A
While M&A may be a new and strange activity to Vietnamese businesses, to Masan, it is simply a tool to be used for developing their long-term vision.
Almost two years ago, on December 25, 2015, Masan Group issued a press release on the M&A deal with Singha from Thailand. Among hundreds of M&A deals in 2015, this was the deal that pushed the value of the Vietnamese M&A market over the $5-billion mark for the first time.
The fact that a foreign company invested $1.1 billion in a Vietnamese business, which was a record at the time and remains one of the largest deals the market has seen so far, deeply impressed the business community in Vietnam.
However, the stellar value was not the only thing making this deal unique. This was the first time in Southeast Asia, and perhaps even in the world, that two giants in consumer products joined forces without the usual buyout.
It should also be noted that with a strategic investment like this, the typical committed cooperation period is usually five to seven years, and the future of the partnership will be considered afterward. In reality, many strategic partnerships were signed in 2006-2008, with many investors quickly divesting after three to five years.
However, Danny Le, head of development and strategy at Masan, and Palit Bhirombhakdi, CEO of Singha Asia, affirmed that they have committed to a vision of more than 20 years. After the deal was announced, many media outlets had analysed the unique nature of this deal as a valuable lesson for other Vietnamese companies.
Singha, considered the king of the living room in Thailand, and Masan, king of the kitchen in Vietnam, both set their sights on a larger market, inland ASEAN (including Vietnam, Thailand, Laos, and Cambodia), and joined forces to achieve their common vision.
Just nine months after the partnership was signed, Masan introduced the Chin-su Yod Thong fish sauce in Thailand and received great support from Thai customers.
Unique M&A activities
20 years ago, Masan was known for exporting instant noodles and spices, and now, it is known as one of the largest consumer product manufacturers, leading in many fields, from fish sauce, soy sauce, convenient food to coffee and meat products. According to a Masan survey, by the end of 2016, 98 per cent of Vietnamese households were using at least one of Masan product. Its net revenue in 2016 was approximately $2 billion.
For Masan, whether it is to change direction or expand product lines, M&A seems to be the go-to method. For example, when Masan entered the meat products market, its key first step was to invest in Proconco (and later acquire a controlling stake) acquiring its famous brand of Bio-zeem supplemented brand. In order to complete the 3F value chain (Feed-Farm-Food), Masan has spent over VND2.1 trillion ($92.4 million) to acquire 29.94 per cent strategic capital in Vissan, the country’s largest pork supplier.
The 3F value chain is an instrumental step for Masan to carry out its vision of bringing the price of meat products to a reasonable level, which currently stands at double the prices in the US. At the same time, the company aims to respond to the growing demand for clean meat products with clear origin. Masan expects to complete the 3F value chain by mid-2018.
Of course, M&A is not the only tool helping Masan become the largest supplier of pork in Vietnam. In 2016, this corporation invested VN1.2 trillion ($52.8 million) to build one of the largest clean pig farm in Vietnam.
M&A or investment, Masan always chooses the most beneficial method to manoeuvre the consumer product market. According to Danny Le, M&A is simply a tool for Masan to grow and not its end goal.
“When acquiring a stake in other companies, at the strategic or controlling level, Masan never looks to gain revenue or profit, but rather to set the groundwork to support its overall strategy. This groundwork could be better technology to create better products at more affordable prices or a distribution network to expand Masan’s impressive existing network or to help develop and protect the strong brand of Masan,” Le said.
True to this principle, the scale of a deal has never seemed to be a concern for Masan. The company bought Phu Yen Beer for only $12 million to acquire its brewing technology and created the brand “Su Tu Trang” (White Lion), currently very popular at south-eastern and south-western provinces.
On the other hand, Masan spent over VND1.07 trillion ($47 million) to acquire a controlling stake in Vinacafe Bien Hoa and enter the Vietnamese coffee market in 2011, and announced plans to raise its ownership in the coffee company with an additional VND444 billion (19.5 million) in 2016.
As such, Massan is currently holding two M&A records in Vietnam, both in terms of the value and the number of deals (not including real estate acquisition projects).
Most recently, in April 2017, Masan made another excellent M&A deal, selling capital from Masan Group and Masan Nutri-Science to KKR, a large US investment fund. Not only did this deal value up to $250 million, but also marked KKR’s second investment in Masan, after a $359-million deal in 2011, returning more than the expected profit.
The return of KKR was due to the new foundation Masan has built in the meat products market. KKR shares Masan’s vision and believed that this would turn out to be another profitable investment.
“When selling, we specifically look for investors who believe in Masan’s vision and its ability to realise it,” said Le.
The art of using money
“Masan does not want to borrow money to perform acquisition,” Le shared. To most other companies, funding sources are usually the first concern when considering a buyout or investment in another company.
“We are always ready for deals, even unexpected ones. Monetary discipline is a top priority when doing M&A,” Le said.
Short-term benefit was never Masan’s concern. Prior to KKR, an investor has offered a 20 per cent higher buying price, but Masan refused because that company did not share its long-term vision. Similarly, when acquiring a stake or buying out another firm, Masan is always prepared to offer a much higher price than competitors because the right foundations can make up for the price difference within two or three years.
Danny Le does not find striking an M&A deal difficult, the challenge lies in post-M&A business development.
Apart from monetary discipline, the hardest parts for buyers are knowing what you need, whether the seller possesses what you need, and whether you can do better than the acquired business currently does.
“Of course, it is impossible to foresee everything, but it is crucial to create your own principles of buying or selling and share with your partner the vision of serving customers with better products. At Masan, we sell our stakes when an investor can share our development vision and buy when we can get better foundations to grow in the consumer products sector, with the ultimate goal of serving our customers,” Le said.
Masan’s leaders shared that the corporation will continue M&A activities in fields serving the consumer demand with large market opportunities and high growth potential. The market may once again see some unique M&A deals.
