Korea’s M&A market expected to be worth 20 trillion won in 2023

[Source : Gettyimagesbank]

South Korea’s mergers and acquisitions (M&A) is expected to total more than 20 trillion won ($15.7 billion) this year, but challenges remain on high interest rates and large gap in views between potential buyers and sellers on deal values.

In the M&A market, private equity funds are expected to sell out a large quantity of shares to recover their investment, according to the investment banking industry Thursday.

Large businesses owned by MBK Partners, including Modern House, eB Card Co. and Lotte Card Co. are expected to undergo a sale process this year. Market’s attention is focused on whether Hanon Systems, which is valued at about 6 trillion won and manufactures ventilation and air conditioning solutions for Hahn & Co., will be able to find a new owner this year. Hahn & Co. decided to sell its shares in K-Car Co. listed on the stock market and recently started its sale process after appointing a financial advisor to oversee the sale.

IMM Private Equity is also looking for potential domestic and foreign investors to recover its investment from Able C&C, which owns the cosmetics brand “Missha.” Affinity Equity Partners’ Burger King and KR&Partners’ Mom’s Touch, big names in the hamburger franchise industry, started looking for buyers last year with stapled financing that offers financial package to potential buyers without much progress. There is interest whether Skylake Investment Co.’s NexFlex Co. and Glenwood Private Equity’s PI Advanced Materials Co., which failed last year, will try again this year. The market value of potential sales held by large PEs alone amounts to 15 trillion won.

Additionally, financial institutions and companies including KDB Life Insurance Co., MG Non-Life Insurance CO. and Daol Investment Co. are looking for a sell-out and some sales are expected to be put on the market as part of their restructuring processes. As a result, all sales opportunities combined will amount to 20 trillion won.

Large-scale institutional investors such as domestic pension funds and mutual aid association insurance companies are still tightening their purse strings due to lack of internal liquidity, and the interest rate for M&A loans is still in the 8-9 percent range with no signs of easing, which makes market players reluctant to invest in the market.

[Source : Gettyimagesbank]

Furthermore, the gap between the sell-side and buy-side over sale prices remains, worsening the outlook for smooth sell-outs. The prospective buyers demand lower prices given the recent decline in market value, while the sell-side is not willing to accept the fast-changing reality. It seems they need more time to resolve the difference.

Meanwhile, current developments present an opportunity for large domestic and foreign PEs with funding capabilities and large conglomerates capable of mobilizing cash. Global investment firms such as Black Stone, KKR, Carlyle Group and TPG are saving up unallocated funds known as “dry powder” worth hundreds of trillions of won and waiting to capture investment opportunities. As of the end of last year, the amount of dry powder from PEs and venture capitals around the world was $1.96 trillion, up 21 percent year on year, according to Preqin, a London-based investment data company that provides financial data and insight on the alternative assets market.

A source from a global PE investment company said, “Global PEs with investment experience during several global financial crises in the past have been eyeing for cheap buying opportunities since last year, anticipating rising interest rates and economic recession.”

Large companies aiming for new business expansions can also take advantage of the situation. A source from the IB industry familiar with details of large corporations said, “While many companies are busy securing cash for survival, some large companies that can spare money are looking forward to good M&A opportunities as businesses undergo reorganization and restructuring amid the economic downturn. The competition can be fiercer than expected.”

In a survey on conglomerates’ capital investment and management plans conducted by Maeil Business Newspaper’s premium IB news site RAYTHE M at the end of last year, respondents said that, with opportunity, they will explore new growth engines despite uncertainties. A total of 65.9 percent of the respondents said they plan to increase investment if an opportunity arises.