Explosive M&A Market
The local M&A market is growing explosively as mid-sized conglomerates put their subsidiaries on sale due to liquidity risks, and the government accelerates the disposal of government-funded companies for fiscal stability. Those in court receivership and corporate workout programs are expected to be on the market to find new owners as well.
The number of companies worth at least one trillion won (US$944 million) is increasing there, and even those priced at over three trillion won (US$2.8 billion) are found on the list these days. The local M&A market is expected to reach 30 trillion won (US$28.3 billion) in size in the near future as more and more companies are poured into the market from the private and public sectors alike.
Largest M&A Market in History Opens
According to investment banking industry sources, the list is filled with companies from across all industries, ranging from manufacturing and financial to construction and food. Also, large companies worth over one trillion won (US$944 million) are scheduled to be put on the market by the end of next year.
The hottest one of them is Woori Bank, which holds the key to the privatization of the Woori Financial Group. Any company succeeding in acquiring Woori Bank can become the sole leader of the local financial industry, but not a few people are casting doubt on the possibility of the acquisition, because the bank costs more than three trillion won (US$2.8 billion).
OB Beer, owned by the global private equity fund KKR, is estimated to be sold at over four trillion won (US$3.78 billion) and the government’s Daewoo Shipbuilding & Marine Engineering is predicted to be priced at about three trillion won (US$2.8 billion), including the premium of corporate control, too.
Other trillion won-scale M&A targets include ADT CAPS, KDB Daewoo Securities, C&M, and STX Europe. A large number of private equity funds (PEFs) have been deeply interested in ADT CAPS, and KDB Daewoo Securities is a company that could change the rankings in the local securities industry in an instant. C&M is for sale by MBK Partners for investment retrieval. Mid-sized groups such as Dongbu, Hyundai, and Tong Yang are coming up with more subsidiaries along with PEFs seeking disinvestment, signaling that the M&A market will be led by potential buyers for a while.
PEFs Likely to Take the Lead
The problem is that buyers are rather unwilling. The mid-sized conglomerates have been faltering due to the aftereffects of M&As, and most of local business groups are trying to procure cash nowadays. “We have shifted our business focus from growth to stability, and we will concentrate more on the latter next year,” said one of them, adding, “We need to be rather conservative even with an opportunity for growth.”
Another negative factor is the absence of CEOs to make the final M&A decision. “At present, the majority of the groups that have been quite aggressive in the M&A market do not have a CEO,” an investment bank official explained, continuing, “This is why many companies have taken part in the M&A processes only perfunctorily or given up midway.”
Under the circumstances, not strategic investors but PEFs with abundant liquidity are likely to play a more important role in the market down the road. As of the end of last month, the number of PEFs subject to the Financial Investment Services and Capital Markets Act reaches 225 and their combined amount is 41.3247 trillion won (US$39.0105 billion), which is second only to Samsung Electronics and Hyundai Motor Company. In particular, MBK Partners and H&Q raised funds worth 1.5 trillion won (US$1.4 billion) and 500 billion won (US$472 million) this year, respectively.