Enterprises choose shortcuts, expanding business through horizontal M&A

Enterprises choose "shortcuts" to expand business through horizontal M&A

To expand their business, many listed enterprises choose the shortcut of increasing debt to finance capital for mergers and acquisitions (M&A) in the same field.

Hua Na Hydropower Plant (Photo: Le Toan)

Conduct M&A of both port companies and transport companies

When capacity is near maximum and expansion is limited, in order to quickly expand business, listed enterprises choose to take a shortcut by acquiring competitors, instead of investing from the beginning.

For example, in July 2024, Vietnam Container Joint Stock Company (Viconship, code VSC) bought an additional 65% of capital at Nam Hai Dinh Vu port, equivalent to about VND 2,179 billion to increase ownership from 35% to 100%.

According to the expectations of Viconship's leaders, when acquiring Nam Hai Dinh Vu port, the Company will receive cargo from Green and Vip Green ports in case of overlapping ship schedules, helping to reduce outsourcing service costs, thereby improving Viconship's gross profit margin.

To expand business through M&A activities, both Viconship and Hua Na Hydropower increased debt.

In addition, Nam Hai Dinh Vu port is located between two ports owned by Viconship, Vip Green and VIMC Dinh Vu. The fact that Nam Hai Dinh Vu port is "adjacent" to Vip Green creates a seamless wharf system over 800 m long, helping Viconship optimize operating costs and increase cargo handling capacity.

According to research, Nam Hai Dinh Vu port is located in the downstream area of ​​Cam River, in front of Bach Dang Bridge, with a designed capacity of 550,000 TEU and can accommodate ships up to 48,000 TEU. After acquiring Nam Hai Dinh Vu port, Viconship owns 5 ports, with a total designed capacity of 2.45 million TEU, approximately 30% of the total capacity of Hai Phong port cluster.

However, analysts have made cautious forecasts about the exploitation of Nam Hai Dinh Vu port after Viconship officially increased its ownership to 100%. In particular, Vietcombank Securities forecasts that Nam Hai Dinh Vu port will reach 40% efficiency in 2024 and 45% in 2025. DSC Securities also forecasts that Nam Hai Dinh Vu port's exploitation capacity in 2024 will reach 40%, mainly thanks to the source of goods transferred from Viconship's two main ports.

Vietcombank Securities forecasts that by 2025-2026, in the Hai Phong area, supply will increase by about 34% compared to present. Although supply pressure increases, experts believe that in the long term, the Vietnamese seaport industry will continue to benefit from the US-China trade war and the increase in loading and unloading service fees, so businesses will continue to increase capacity and build new ones to expand capacity in key areas.

In fact, not only expanding the port sector, recently, Viconship has also made a move to expand the transport sector through M&A. In particular, Viconship has completed the transfer of more than 12.76 million shares of Vinaship Shipping Joint Stock Company (code VNA) to increase ownership from 2.46% to 40.01% of charter capital, equivalent to VND 344.72 billion.

According to research, Vinaship Maritime Transport, formerly known as Maritime Transport Company III, was established in 1984. The Company's revenue mainly comes from international maritime transport business and partly from transportation, loading and unloading, and container yard exploitation services.

Of which, Vinaship currently owns a fleet of 5 ships with a total capacity of 95,861 DWT, an average age of over 20 years, of which 3 ships have a capacity of 22,000 - 27,000 DWT (28 years old), one ship has a capacity of 13,245 DWT (16 years old) and one ship has a capacity of 6,500 DWT (21 years old).

It can be seen that increasing ownership to 40.01% at Vinaship helps Viconship continue to expand its core business of transportation, in addition to the port sector.

Using debt to finance M&A deals with businesses in the same industry

Similar to Viconship, Hua Na Hydropower Joint Stock Company (code HNA) was listed on HoSE in January 2024 when it only owned one factory, Hua Na Hydropower Plant, with a capacity of 180 MW, a total investment of VND 7,092 billion, put into operation since 2013.

Owning a plant that has been in operation since 2013 also poses a growth problem for the enterprise. Instead of investing in a new project, the leadership of Hua Na Hydropower Plant decided to acquire Nam Non Hydropower Plant (Nghe An province) in October 2024, with an installed capacity of 20 MW with 2 units, put into operation since September 6, 2014, with a total investment of 513 billion VND.

It is worth noting that, to expand business through M&A activities, both Viconship and Hua Na Hydropower increased their debt.

If on January 1, 2022, Viconship does not use debt, then by September 30, 2024, the total debt will be up to VND 2,182 billion, equal to 47.4% of equity (industry average is only 39%).

Similarly, although it has not increased its debt, Hua Na Hydropower approved a plan to borrow capital from the Joint Stock Commercial Bank for Foreign Trade of Vietnam - Hanoi Branch to buy Nam Non Hydropower Plant, with a maximum loan amount of VND 487.62 billion.

Mr. Hoang Xuan Thanh, Chairman of the Board of Directors of Hua Na Hydropower Plant, shared that the Company plans to use 696.6 billion VND to invest in the Nam Non Hydropower Plant Project (capital structure is 30% equity, about 208.98 billion VND and 70% loan capital, equivalent to about 487.62 billion VND).

Thus, if the capital structure remains unchanged, it is estimated that after receiving additional debt to acquire Nam Non Hydropower Plant, the total debt of Hua Na Hydropower Plant will increase to VND 596.53 billion, equal to 18.97% of equity.

It can be seen that, along with the M&A strategy, the increased use of debt is creating significant financial cost pressure for both Hua Na Hydropower and Viconship after M&A and this will reduce efficiency because M&A projects need more time to upgrade.

Source: https://baodautu.vn/doanh-nghiep-chon-duong-tat-mo-rong-kinh-doanh-bang-ma-theo-chieu-ngang-d229879.html