As the leading pharmaceutical company in Vietnam, the rise of Traphaco has been confirmed, so how can Traphaco surpass other companies in the industry? To find out the answer to this question, we contacted Ms Vu Thi Thuan, President of Traphaco Joint Stock Company, and received a friendly, enthusiastic reply. She shared with us a remarkable perspective about Mergers and Acquisitions (M&A) in Vietnam today, especially M&A in the same industry.
Friendly M&A
When it comes to M&A, people will think of a take-over in a bad connotation. But with Traphaco, Ms Thuan gave us a new concept: "Friendly M&A". When asked why Traphaco conducted M&A in the same industry in recent years, Ms Thuan said that M&A strategy is to form large groups in a sustainable manner. While doing M&A in the same industry, the parties that are for the benefit of each other will be more sustainable due to resonance. "For Traphaco, M&A in the same industry aimed at expanding scale and consolidating distribution network, instead of having to set up new branches, so Traphaco invests in the companies which have distribution network in key provinces," Ms Thuan confirmed.
Friendly M&A When it comes to M&A, people will think of a take-over in a bad connotation. But with Traphaco, Ms Thuan gave us a new concept: "Friendly M&A". When asked why Traphaco conducted M&A in the same industry in recent years, Ms Thuan said that M&A strategy is to form large groups in a sustainable manner. While doing M&A in the same industry, the parties that are for the benefit of each other will be more sustainable due to resonance. "For Traphaco, M&A in the same industry aimed at expanding scale and consolidating distribution network, instead of having to set up new branches, so Traphaco invests in the companies which have distribution network in key provinces," Ms Thuan confirmed.
Traphaco buys controlling shares of some companies in the same industry. Then with available financial resources and professional management, Traphaco will turn it into an organic unit.
An interesting point mentioned by Ms Thuan is that M&A in the same industry will protect the industry. For example, if a pharmaceutical company in Province A is turned into a company selling other products, it clearly does not have resonated values here.
Vietnam’s M&A market is now quite hot with deals of several billion dollars a year, but M&A in the pharmaceutical industry is unique and especially Traphaco is playing a role of "domestic buyer". With its strategy, Traphaco conducted M&A in the same industry with criteria based on mutual respect with the same philosophy and goals, which will ensure fairness for the benefit of both parties. According to Ms Thuan, in the pharmaceutical industry there are many potential businesses but they fail to promote their potential so through M&As, Traphaco together with those businesses will take the advantage. It is also a good strategy.
Post-M&A: "feeling good"
To make an M&A deal a successful business is much more difficult than sign the deal terms. With Traphaco, the uneven quality of governance while doing M&A is very clear. About this content, Ms Thuan said that Traphaco’s strategy is to hold controlling stakes, taking the strategic direction and operating directly in a spirit for co-workers and the development of the industry.
On the determinants of success of M&A, Ms Thuan said that to have the development post-M&A, the senior staff of the business is the most important. If there are other partners joining Traphaco, the nuclear leaders are still Traphaco employers because they are the soul to create development, understand the strengths and limitations of the company.
Pharmaceuticals is a unique industry. According to Ms Thuan, in companies that Traphaco conducted M&A, the leaders are weak in economic thinking so the businesses face difficulties in management. So after conducting M&A, Traphaco, with expertise and good governance, gradually reformed and innovated the workforce of enterprises with the participation of new actors from key personnel of Traphaco.
With this friendly M&A strategy, the “marriages” with other businesses in the same industry of Traphaco have yielded fruit. Dak Lak Pharmaceutical Company after becoming a strategic shareholder of Traphaco had revenue increased by 20 percent and average salary increased by 40 percent. In Quang Tri Pharmaceutical Company, the result is very satisfactory with an average salary increased by 20 percent. The most recent is the case of Thai Nguyen Pharmaceutical Company, although it had been equitised for 10 years, the corporate governance did not improve much. After M&A, Traphaco and Thai Nguyen Pharmaceutical Company completed management system, built the internal regulations, implemented democracy: worker earnings based on contributions. The shareholders and employees are very supportive the goal for common development.
Long road ahead
When asked about Traphaco in its M&A deals, especially with foreign investors, Ms Thuan said that when putting money into M&A, investors are wary. There have been a number of foreign investors interested in investing in Traphaco and Traphaco’s responsibility is always showing its transparency for investors to correctly understand Traphaco. Currently, Vietnam's pharmaceutical industry is growing, foreign partners want to transfer technology and make use of distribution channels in the market with growth rate of 2 numbers.
In the M&A game of Traphaco, many people question whether Traphaco loses the M&A game when it has to disperse its financial resources and management capabilities. Up to now, Traphaco is present in 6 companies and these units have positive changes to become organic parts for Traphaco development.
About the M&A strategy in the future, Ms Thuan said Traphaco is determined to focus on the domestic market, building a strong distribution system through holding a controlling stake.
With this strategy, until 2015, Traphaco is striving to develop more than 20 branches throughout the country and can carry out the M&A activities to develop the system both in width and depth. "We invest in any fields that can create profit, the profit here includes long-term strategy such as participation in Thai Nguyen Pharmaceutical company, because Thai Nguyen is the centre of North Vietnam, so we invest for the future of the business," Ms Thuan said when asked about the expansion strategy through M&A.
Ms Thuan emphasized that "this tool is very effective if you know how to take advantage, but it is not easy". M&A is difficult, post-M&A is even more difficult. In the case of Traphaco when conducting M&A, it must be a controlling shareholder to innovate business. "Traphaco conducts M&A for long-term growth rather than financial investment," Ms Thuan said.
Traphaco’s development stages
Established in 1972, Traphaco has developed from the Production Unit of the Railway Company, then Drug Factory of the Railway Company (1981), Railway Pharmaceutical Factory (1993); Pharmaceutical and Transportation Medical Equipment Company (1994); Pharmaceutical and Transportation Medical Equipment JSC (1999) and Traphaco JSC (2000).
In 2002, the company established its first branch in Ho Chi Minh City.
In 2004, the company inaugurated and put into use Hoang Liet - Hoang Mai drug factory in Hanoi. The factory was certified GMP-WHO standard in January 2007 by Drug Administration Department of Vietnam.
In 2006, the company established its 2nd branch in Da Nang city.
In 2007, the company opened a manufacturing traditional medicine plant in Van Lam - Hung Yen meeting the WHO-GMP standards and established Traphaco High-tech JSC.
On June 26, 2009, the company launched a TRAPHACOSAPA Co.,Ltd in Lao Cai. The company also inaugurated the 3rd branch in Nam Dinh.
In 2010, the company established 4 branches in Nghe An, Thanh Hoa, Hai Phong, Vinh Long.
In 2008, its stock (code TRA) was officially traded on HOSE.
From 2012, starting Traphaco completed M&A with a number of small businesses with the goal of expanding and developing the distribution system in order to develop strategies "Traphaco - healthy green road". To date, there have been 6 M&A deals implemented by Traphaco and evaluated by experts as 'friendly marriages' and the results were positive.
In November 2011, Traphaco successfully increased the percentage of ownership from 12.83 percent in Traphaco High-tech JSC (CNC) to 50.96 percent.
On 29 October 2012, Traphaco became a major shareholder of Quang Tri Pharmacy - Medical Supplies JSC with ownership rate of 42.91 percent of the charter capital.
On 11 May 2012, Traphaco officially became the largest shareholder of Dak Lak Pharmacy - Medical Supplies JSC with ownership rate is 24.5 percent.
On 10 October 2012 Traphaco increased its ownership rate in Dak Lak Pharmacy - Medical Supplies JSC from 24.5 percent to 51 percent.
In 2014, Traphaco acquired 21,182 shares of Thai Nguyen Pharmacy & Medical Supplies JSC, equivalent to 49 percent of the company's charter capital.
Traphaco’s achievements
Production and business results of Traphaco in 2013 are as follows: increasing the charter capital from VND123,398,240,000 to VND246,764,330,000 with VND1,682 billion in revenue, increased by 20.1 percent compared to 2012, in which production sales reached VND1,097 billion, net profit VND149 billion, an increase of 28.4 percent compared with 2012. The company invested VND60.6 billion to buy shares in pharmaceutical companies Dak Lak and Thai Nguyen, and build facilities in factories or branches.
In 2014 plan, Traphaco is expected to have revenue of VND1,860 billion (excluding VAT), increased by 10.5 percent compared to 2013 in which the exclusive production and distribution reach VND1,280 billion (up 16.7 percent compared to 2013). The entrusted imports and exports products and retails aim to reach VND320 billion; Revenue from subsidiaries aims to reach VND260 billion. The company also identified a profit after tax of VND162 billion, up 8.7 percent compared with 2013.
To date the company has 14 branches across the country and the production results have been developed over the years. Traphaco has successfully applied modern management tools such as ISO 9001-2000; ISO 14001-2004 and received 5S certificate (Japan).
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