Question 3: Business Expansion in Vietnam

3.1. Reason

Our team decided to buy an existing company rather than open a new one because this is a well-
liked method of market expansion that has numerous advantages for companies trying to grow.
Simultaneously, we selected to examine SABECO since it is among the biggest acquisitions in
Vietnam and has generated significant profits for ThaiBev thus far. This analysis shows that
acquisitions are an excellent strategy for growing a company into a new market or international
location.

3.2. Theory

M&A (Merger and Acquisition) is a term used in business activities when wanting to expand a
business or open a new market.

Mergers, sometimes referred to as mergers, are actions taken by two businesses that aim to
combine to form a single new business while retaining ownership and management of the
former. Each party has an equal number of shares, making it impossible for one party to
dominate the other's business.

Acquisition - also known as acquisition / acquisition is a form in which a business seeks to gain
control of another business by acquiring all or part of the total shares (more than 50% of the
shares of the business) or assets of the acquired business.

SABECO is evidently a part of the Acquisition form, which is the second form. Do ThaiBev
assumes complete ownership of SABECO after acquiring more than 50% of its shares.

3.3. Introduction

About Sabeco

SaiGon Beer Alcohol and Beverage Joint Stock Corporation (SABECO) is one of the major
corporations in Vietnam. They have been established and developed for more than 140 years and
are historical witnesses in each period of Vietnam's development. SABECO has set out a vision
to 2025 as "Develop SABECO into Vietnam's leading beverage industry group, with regional
and international position". Because of that great goal, they have exported Saigon Beer to more
than 30 countries. Especially there are countries famous for producing the best beer in the world
such as Germany, the Netherlands, the Czech Republic.

About ThaiBev
Thai Beverage Public Company Limited (ThaiBev) is the leading beverage company in
Southeast Asia and the largest in Thailand. The Group has a vision "to be a world-class overall
beverage company demonstrating commercial excellence, continuous product development and
premiumization as well as professionalism". As of September 30, 2020, ThaiBev has 218
subsidiaries and affiliated companies and an extensive distribution network covering 400,000
points of sale in Thailand. In addition, ThaiBev has an international presence in more than 90
countries.

3.4. Analysis of the SABECO acquisition process

3.4.1. Why did the owner sell the business?

With over 140 years of brewing experience, Sabeco is a well-known Vietnamese beer brand
owner, owning brands like Saigon beer and 333beer. In addition, they are among the top beer
companies in ASEAN and hold the biggest market share in the Vietnamese beer market.
Furthermore, "ThaiBev also assesses Vietnam as a potential market for the beer industry, the
third largest in ASEAN and only behind China and Japan." As a result, the Group will benefit
from this acquisition by broadening its market into new areas, diversifying geographically, and
gaining a sizable distribution network in Vietnam. Thus, purchasing SABECO is a viable option
that aligns with ThaiBev's objective of expanding across the country. In addition, it is evident
that ThaiBev has a strong domestic business that will support its growth going forward and
serves as a dependable source of beer production for export to well-known beer-consuming
nations like the UK, Belgium, and Germany.

3.4.2. The financial condition of the business

- Profit after being acquired

Sabeco has been a ThaiBev Group

subsidiary for five years at the end of
2022. The net profit of VND 5,500
billion and net sales of VND 34,979
billion, respectively, were reported by
Saigon Beer - Alcohol - Beverage Joint
Stock Corporation (Sabeco), which
represents an increase of roughly 30–
40% over the same period previous
year. In 2022, Sabeco's revenue
witnessed a recovery of over 90%
compared to its peak year of 2019, and
the company's profit reached VND
Figure 1 Sabeco’s Annual Revenue 5,500 billion, setting a new record.
 In 2022, Sabeco's gross profit margin
was close to 31%, up from 26% in 2017.
Despite revenue still not entirely
recovering from the COVID 19
pandemic in 2019, Sabeco has
concentrated on increasing its gross
profit margin and net profit to reach a
historic high of VND5,500 billion in
2022. The five-year span from 2018 to
2022 saw a 25% rise in Sabeco's profit.
Over the preceding five-year period
(2013–2017), Sabeco's profit climbed by
over 120%.

Figure 2 Sabeco's Annual Gross Profit Margin

Prior to ThaiBev's acquisition of Sabeco in 2017, the company's sales was 3.5 times higher than
that of its domestic rival, Habeco. But by
2022, Sabeco's income had surpassed
Habeco's by a factor of 4.2. The net profit of
Sabeco in 2017 was 7.5 times that of Habeco.
In 2022, Sabeco's net profit surpassed
Habeco's by a factor of 10.4. Despite a
significant improvement to 27.46% in 2020,
Habeco's gross profit margin remains around
3% lower than Sabeco's.
Figure 3 Sabeco and Habeco’s Net Profit Over The Past 10 Years.
- Corporate value

After over five years of innovation, Sabeco

has accomplished a number of noteworthy
feats. With revenue up 33% to VND34,979
billion, profit up 40% to around VND5,500
billion, and gross profit margin increasing
from 28.8% to a record 30.8% in 2022, the
company achieved impressive results. To
date, Sabeco has never made more money
after taxes than this. And the chart also
shows that SABECO is occupying a leading
position compared to other rival companies.
Figure 4 Market Share of Vietnam's Beer Industry
The company aims to become the leading beverage industry group in Vietnam and expand its
horizons to the world.

Through the reduction of material and energy use, Sabeco has increased operating efficiency in
the Manufacturing division. Significant cost savings have been achieved by improving
manufacturing norms. As the top-performing brewery each year, Sabeco is also given the Good
Brewery award. Furthermore, Sabeco pledged to maintain the environment and the community,
and it has installed rooftop solar projects for nine breweries, which has contributed to a decrease
in energy expenditures and greenhouse gas emissions.

3.5. Challenges and opportunities of ThaiBev when acquiring Sabeco

- Challenges:

Taking on a company in another country is no small challenge. First of all is corporate culture, in
order to achieve shared objectives and create a fair and healthy business environment for brands
in the market, corporate culture seeks to proliferate, spread, and provide solutions to create a
friendly and cohesive working environment among organization members. This helps to ensure
the beverage industry in Vietnam continues to grow sustainably.

Another hurdle involves enhancing SABECO's manufacturing, promotional, and distribution

efforts to boost earnings and stay competitive in the alcoholic beverages sector. Achieving this
goal might necessitate substantial investments in production capabilities, enhancing product
standards, and broadening consumer markets. Additionally, ThaiBev must grasp the preferences
of local consumers to formulate suitable product and marketing plans.

The deputy editor-in-chief of Vietnam Beverage Magazine, Mr. Nguyen Van Chuong, stated:
"Business culture and corporate culture are critical to the long-term viability of any enterprise. In
the current environment, customers will trust businesses whose corporate cultures uphold the
quality of their products, cultural behavior, and civilization with the community and their
customers”.

In essence, the purchase of SABECO presents significant chances for ThaiBev to extend its
reach and increase revenue, yet it also entails tackling numerous hurdles during the post-merger
integration and management phase.

- Opportunity:

Taking the company to a new level of development can be achieved by implementing a new
culture. This will be a chance to advertise the company to clients and draw in fresh capital and
skills. Furthermore, we might regard it as a chance to engage in highly social activities that will
help us get to know our customers. Over the past 14 years, SABECO has been a constant
accompaniment to both the Ok Om Bok Festival and the Ngo Boat Race in Soc Trang. Through
sporting events, SABECO hopes to advance cultural values. Complementary initiatives like
SABECO's show how businesses have an obligation to help develop a destination brand for
tourism, which in turn generates substantial economic benefits for the area. Second, the
acquisition of SABECO also helps ThaiBev diversify its product portfolio. In this way, Sabeco
can meet the needs of many market segments and create diverse product options to attract more
customers. In brief, acquiring SABECO offers ThaiBev the chance to expand its market, increase
revenue, and optimize business operations, ultimately enhancing long-term value for the
company.

3.6. Conclusion

The acquisition of ThaiBev and SABECO is one of the largest M&A deals in Vietnam. This deal
has brought many benefits and disadvantages as follows:
Benefit:
 Successfully expand the market in new markets, new countries.
 Increase profits many times and especially have been listed above
 Increase quality and diversity human resources
 To become one of the leading alcohol producers in Southeast Asia
 Financial optimization
 Beyond beer, ThaiBev offers a wide variety of other drinks in its portfolio, including spirits,
non-alcoholic drinks, and food items. Sabeco now has the chance to expand the range of
products it offers and possibly reach new markets for its target audience.
 Sabeco can benefit from ThaiBev's marketing skills to improve the perception of its brand and
reach a wider audience. Sabeco can enhance its position in both domestic and international
markets by implementing efficient branding strategies and implementing focused marketing
efforts.
 Sabeco may be able to save money on the acquisition through efficiencies in distribution,
operations, and procurement. Both businesses can benefit from economies of scale and
increased profitability through pooling resources and working together.
Disadvantageous:
 It costs a lot of money and time. Because according to the above analysis, Thaibev faced legal
problems to be able to buy back more than 50% of SABECO's shares. Therefore, Thaibev had
to set up 2 small businesses to act as a legal bridge to buy more than 50% of SABECO's
shares.
 There is always a chance that the acquisition's strategic justification won't work out as
planned in the long run. The projected synergies or growth potential could be jeopardized by
changes in consumer preferences, the regulatory landscape, or the market dynamics.
 Acquisitions in heavily regulated sectors, such as the alcohol industry, may encounter
regulatory obstacles and scrutiny from government agencies. The operations and profitability
of the acquired company may be impacted by modifications to laws or government
restrictions.
 ThaiBev's financial standing may be strained by the acquisition, particularly if a sizable
amount of debt is taken on to finance the transaction. Excessive debt levels may make it more
difficult to invest in growth initiatives or raise financial risk.
 If financing is insufficient or the acquisition strategy is inadequate, it will result in the loss of
both lead and pestle.
 Consolidation in the market could draw the interest of regulators overseeing competition,
raising questions about antitrust laws or bringing in other rivals hoping to profit from the
acquisition's turmoil.
 As a result of being purchased, Sabeco may lose its freedom and independence. This could
result in disagreements with local management and less flexibility in adapting to market
developments as decision-making authority moves to ThaiBev's corporate office.
Recommendation:
- ThaiBev must create a cohesive work environment by fostering cross-cutural understanding
and clear communication between employees of both companies.
- ThaiBev should develop a comprehensive strategic plan for the integration of Sabeco into its
operations.
- ThaiBev muse protect and enhance the value of the Sabeco brand by maintaining consistent
messaging and safeguarding intellectual property rights.
- Acknowledge the legacy and brand equity of SABECO's brands, which include well-known
names like Saigon Beer. Steer clear of making significant modifications that can erode the
brand's identity or enrage devoted customers. Rather, concentrate on maintaining the
distinctive qualities of SABECO while utilizing ThaiBev's resources to improve product
quality and innovation.
- Provide funds for product development and marketing campaigns to promote market
expansion and uniqueness. Create focused advertising efforts that appeal to Vietnamese
customers and draw attention to the distinctive qualities of SABECO's brands. To expand
your product line or create new versions that meet changing customer demands, spend money
on research and development.
- To evaluate the success of the purchase and modify strategy as necessary, keep a close eye on
key performance metrics and market developments. Keep your flexibility and responsiveness
in the face of shifting consumer preferences, legal requirements, and market conditions. To
guarantee long-term success, assess the integration process frequently and make necessary
improvements.
In conclusion, acquiring SABECO requires a significant financial and time investment, but the
advantages it offers ThaiBev make those costs worthwhile. Due to ThaiBev's sound financial
standing and well-thought-out approach, the acquisition of SABECO was a planned move that
will pay out in the long run.

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