Hugues Morival, the Director of New Caledonian CesssionsAcquisitions company that has recently opened a subsidiary in Vanuatu, in this exclusive interview for Vila Times explains why investors in New Caledonia and French Polynesia want to move to Vanuatu, how to sell your business in the Pacific, and what countries in South East Asia are the best in terms of growth and return on investments.
– Hi Hugues. Tell me a bit about yourself and your business in Vanuatu.
Well I personally became interested in business transactions when I sold my own companies in France over 10 years ago, before then I had not realized that selling a business would be such a long and complicated process. It took over 2 years overall. So after selling I decided to move with my family to New Caledonia in 2008 where I set up CessionsAcquisitions dedicated to assisting business owners in the transaction process.
The thing is selling a business takes time, time that as a business owner you simply don’t have. This is where we step in, we take care of things while the business owner continues doing what he or she does best – managing their company and generating profit which is of course vital when it comes to selling your company.
Mergers&Acquisitions Ltd was set up in March 2018 with a similar objective in mind – offering business evaluations and brokering services for business/company sale for business owners in Vanuatu. The company has two partners, Benoit Maritan and me. Benoit takes care of the evaluations, and we both assist the client through the entire process, meeting potential buyers, checking their financial capacity, drafting pre-sales contracts, negotiating, talking to the lawyers, bankers, accountants and generally ensuring that everything runs smoothly until the sale is closed.
We have 10 years experience in business transactions via CessionsAcquisitions in New Caledonia (the company will be celebrating 10 years existence in November this year). We deal with all types and sizes of businesses in various sectors of activity (industry, services, tourism, hotels) from small snack bars with 1 employee to large garden centers with 120 employees, as well as commercial real estate. We have another entity in New Caledonia which specializes in the legal aspects of business establishment along with market research, sourcing, business valuations etc.
Our main aim is as I said to assist business owners from the decision to sell through to the final sale, it’s a process that generally takes from 6 to 36 months so it’s essential to have someone there to help.
– So you’re not just doing evaluation and legal support of the deal, you are also finding buyers for the business to be sold?
Yes, we provide the full package of services. Business owners come to us expressing their desire to sell, the first step is to carry out an evaluation of their business, if the evaluation does not correspond to the business owner’s asking price we may have to work with him or her on restructuring the company for two-three years to prepare it for sale at his or her target price.
‘Our clients are looking for businesses for sale in Vanuatu and rest of the Pacific’
– You also help with preparation of a business for sale?
Yes, it takes a lot of preparations. It is a very long process and can be frustrating at times, we need to work not just with the buyer and seller but also with banks, financial experts, lawyers, accountants and sometimes the government. That said we love what we do, it can be a real challenge making a deal to go through, there will always be times when there is a clash between potential buyers and seller, that’s where our role as a mediator comes in, we intervene speaking to each side individually finding the solution to put things back on track. Without a broker these sort of clashes which often come up when the process is practically finished can ultimately break the deal.
‘People in New Caledonia and other French island territories are interested to invest in Vanuatu’
– Right now the interest to invest in Vanuatu comes more from people in France or in New Caledonia?
I would say 50-50. 50% comes from New Caledonia with another 50% from our customers elsewhere, but most of them are French of course. To give an example we are currently working with French people living in South Africa. But we all speak English in the company so we also communicate with buyers from Australia and New Zealand from time to time.
‘Growing interest to invest in Vanuatu linked to political issues in New Caledonia’
– Would you say interest in investments in Vanuatu is increasing nowadays?
Yes, I would say so. There is a direct link to the political issues in New Caledonia. For any business to thrive you need to be sure what future holds, there’s an air of uncertainty due to the up-and-coming referendum in November regarding New Caledonia’s status as a French island. Depending on the outcome this could well be followed with a few more referendums so this period of uncertainty will continue until 2021-2022.
We have also had issues with nickel prices. The prices dropped considerably over recent years but have been on the rise since end of 2017, unfortunately the period when prices were low has had its toll on the economy.
In addition to these issues we have seen strong increases in local taxes in New Caledonia not just for businesses but also for households.
‘People with money in New Caledonia are looking for bridges to Vanuatu’
– What is the tax rate currently?
Basically, businesses are taxed at around 50% on income. 30% of this is taxed at a fixed rate, then there’s an additional 16 to 22% if you distribute the income among company shareholders. In addition to that VAT has been introduced, and taxes for households just keep increasing.
There has also been a significant increase in petty crime in Noumea, several businesses have been victim to fires, theft is also on the increase. This means that insurance companies are starting to refuse to insure companies in New Caledonia or just asking for high insurance premiums.
– So you are saying that taxes in New Caledonia are actually higher than taxes in France?
They used to be lower but in the last 3-4 years we have caught up and even exceeded France, so yes they are higher.
– But as far as I understood the main issue is still the independence referendum and the fact that it is not clear what will happen after?
I think it’s the combination of political tension, petty crime and tax pressure.
‘We have to state that the economy in New Caledonia is not well’
– But it seems that majority in New Caledonia want it to remain the French territory, right? So major changes in the government structure are not likely.
Yes, around 60% is against independence. But what will happen with the other 40%? That is the question. There was a troubled period in New Caledonia between 1984 and 1988 and people don’t want to have that sort of situation again. I don’t think things will get as bad as they were back then, but in any case when an economy is faced with a situation of political unease and a lack of confidence in the future it cannot fare well.
‘New Caledonia and French Polynesia have always had bridges between them’
– And you also do business in French Polynesia, right?
Yes, a lot. There have always been bridges between New Caledonia and French Polynesia, when the economy is not going so well in French Polynesia a lot of people move to New Caledonia and vice versa. So yes, we do work a lot with French Polynesia.
‘Antitrust laws is another reason why big groups in New Caledonia are looking for new markets to invest’
– What about the economy there, is it better than in New Caledonia?
Again, the economy is not great at all, it has stabilized recently but had been receding over the last 9-10 years.
What we need to talk about, apart from the money factor, is that we have the antitrust law in Polynesia. The law prohibits you from exceeding a certain share of the market. If you do go over the limit you have to sell some of your assets. The other alternative is to go to another territory. The same thing has been introduced in New Caledonia recently. At our last conference in New Caledonia this antitrust law was one of the main topics. To give an example in which we have been personally involved as a company, a new hyper-market opened just a few weeks ago in Noumea, our company was in charge of selling one of the supermarkets owned by the same group. Without selling of the supermarket the hypermarket could not have been opened. So companies are restricted in their growth. This is another reason why big groups are looking for new markets to invest in.
– What is the maximum share of the market allowed by the law?
One third – 33.3%. The idea is to have at least three competitors in any sector of the economy.
– Well, it seems like a good law, especially for a small island territory with a lot of unavoidable domestic corruption. Something Vanuatu should have had at least in some sectors, electricity supplies for example.
Yes, that would be good for customers but can be too restrictive in a small market when big investments are needed and can only be supported by large companies.
I’m not saying it’s a good or bad measure, but the fact is that if you want to develop your group the only solution is to go abroad, because even if you add another field of business activity, that will not help since they would take your major business into account. So you cannot extend your business even by adding activity in other sectors.
‘We have almost 600 customers in New Caledonia’
– And your company also does business in Thailand, right?
Yes, that is another of our activities. In Thailand we are partnering with Vauban company that has been working there for twelve years. A few of our clients in New Caledonia who sold their businesses with our help had been asking us to advice them on what to do with the money. So we advised them to diversify their investments and made the partnership with Vauban. We have almost 600 customers in New Caledonia, which is a lot. People who bought one, two or more flats in Thailand. The minimum investment amount is 6 million vatu with up to 10% income a year with payments once a year or every three months. And you also have your capital guarantee with an increase of 2% per year.
– So Thailand is the only market in South East Asia you are working on?
No, we also are in Cambodia and in Bali, Indonesia. And we have a project coming soon in the Philippines.
‘We have a program in Sihanoukville which is the country’s tourist town by the sea with already 65 casino licenses issued’
– What are the differences of these destinations, for investors in particular?
Indonesia is the biggest economy in the region and Bali is its most famous tourism destination. There we offer rental guarantee, cashback and the buyback system. The only weak point is that Bali relies on tourism completely, and also in Indonesia you can not have a freehold as a foreigner, only a leasehold.
Cambodia is an exciting place. It’s a small country of around 15 million people and emerging economy with current GDP per capita of US$3000 and it’s going up. We have a program in Sihanoukville which is the country’s tourist town by the sea with already 65 casino licenses issued. So a lot of people are coming there from China and other places to play in casinos and to invest money, and prices are getting mad. We have a nice program there, part of it will be run by the Best Western hotel chain with rental guarantee between 9 and 10%.
And then we have Thailand, leading country in South East Asia in terms of infrastructure. 69 million people, 35 million visitors last year and they expect 39 million this year. To accommodate all these visitors you need to build a lot of hotels and infrastructure – highways everywhere, 8 international airports expanding all the time, railways etc. Bangkok now is one of the most visited cities in the world. The kingdom of smiles. So it’s an attractive place. We have very nice programs in Bangkok, in Chiang Mai, on islands like Koh Samui where you have rental guarantee and buyback guarantee also. Very good program, we had a lot of customers who bought properties there, sold it back, bought again..
– Real estate market in Thailand and Bali. Prices are still growing, even now in 2018?
Yes, that is one of our other activities with our company Asean Properties. We are the exclusive agent for Company Vauban in New Caledonia and Vanuatu . A few of our clients in New Caledonia who had sold their businesses with our help had been asking advice regarding where to invest their money.
We developed our partnership with Company Vauban and were able to propose that they diversify their investments. We have almost 600 customers in New Caledonia, which is a lot for the market there. Clients mainly invest in condominiums, the minimum sum for investment is around 6 million vatu with up to 10% income per year with rental returns once a year or every three months. And you also have your capital guaranteed with an increase of 2% per year. There are not many places in the world that offer such attractive returns, we propose schemes in Thailand, Bali and Cambodia and soon in the Philippines.
– You had two conferences in Port Vila in May. How was the feedback?
There was a lot of interest. It’s a bit new, people are not really sure what exactly we do. Well we are here to find buyers, to facilitate deals and ensure that you are not wasting your time or money if you want to sell your business. We ensure not just that the deal is signed but that the process runs as quickly and smoothly as possible and that you sell in the best possible conditions, with no regrets.