Diageo, the world's largest spirits company, is boosting its presence in Vietnam with a decision to acquire a 23.6% stake in Hanoi Liquor Joint Stock Company (Halico) from VinaCapital Vietnam Opportunity Fund (VOF) for $51.6 million in cash.
The price represents an exit multiple of 5.3 times the price VOF paid in December 2006, or an internal rate of return of 67.4%, proving that it is possible for private equity firms to exit their investments in Vietnam. This has been a point of concern for some potential investors.
Proceeds from the sale will be added to the firm’s net asset value (NAV) by March 2011. VOF's NAV is expected to increase by approximately 4.1%, or 9.8 cents per share, as a result of this transaction.
"The Halico exit is a clear indication that Vietnam offers excellent deal opportunities in the consumer goods sector, and other high-growth areas,” said Andy Ho, managing director of VinaCapital. “This is our second trade sale in as many months, as multinational companies are looking at Vietnam as their next market for expansion -- creating good exit opportunities for private equity investors."
Given that the most persistent news flowing out of Vietnam of late is the saga about the near-bankruptcy of state-owned shipbuilder Vinashin, the nation’s perilously high inflation and its weakening currency, there aren’t too many corporations willing to see the upside of Vietnam at the moment. But as any long-time investor in this part of Asia knows, Vietnam is comprised of a nation of workers who are best when the country is at its worst. That is precisely why now might be the time to scour Vietnam for opportunities, as Diageo evidently has done.
The deal makes strategic sense. London- and New York-listed Diageo is perhaps best known as the Johnnie Walker distiller and the owner of top single malt brands like Caol Ila and Lagavulin, while Halico is the largest domestic branded spirits producer and distributor in Vietnam. Halico has reported double-digit growth in the past four years and in 2009 its net profit rose to $11.2 million -- a year-on-year increase of 35%.
According to sources close to the deal, Diageo will assist Halico in enhancing its capabilities across a range of functions, including innovation and branding, distribution and corporate relations. In return, Diageo will become a long-term equity investor in Halico and its main brand Vodka Hanoi. Separately, Diageo will continue to develop its international premium spirits portfolio, led by Johnnie Walker, Smirnoff and Baileys, through its wholly owned subsidiary Diageo Vietnam.
Diageo expects to complete the investment in Halico in its 2011 fiscal year, which ends on June 30, subject to customary conditions for completion.
Citi acted as the sole financial adviser to Diageo and is also providing foreign exchange, GTS (global transaction services), banking and custodial services to the company in relation to this transaction.