Korea's M&A market poised to bounce back after bleak Q1

South Korea’s mergers and acquisitions market is poised to bounce back after a bleak first quarter, with 22.3 trillion won ($16 billion) worth of deals expected to be put on the market by the end of June, according to dealmakers on Thursday.

Private equity firms and business groups such as SK Group and Lotte Group are renewing their efforts to divest of assets, with buoyant stock markets lifting their valuations, and narrowing the valuation gaps between bidders and sellers.

Retail-focused Shinsegae Group and entertainment-to-food conglomerate CJ Group are speculated to be placing their non-core assets up for grabs to fight dwindling sales and address financial difficulties.

On the buy side are Samsung Group, LG Group and Hanwha Group, which are on the hunt for new growth drivers mainly in the overseas M&A market amid expectations for interest rate cuts, which should ease their financing costs.

Reduced political uncertainty is giving another momentum to the Korean M&A market after the main opposition Democratic Party retained a majority in the South Korean parliament in general elections on Wednesday.

Asia's No. 4 economy saw no big M&A deals, or M&As worth $1 billion or more, in the first three months of this year

“It has been more than one and a half years since the M&A market entered winter all of sudden due to high interest rates,” said a private equity firm official.

“It is always darkest before dawn. We expect the M&A market to rebound from the first-quarter trough.”

The following are companies, or stakes of companies up for sale in Korea:

Year of acquisition	Company name	Top shareholder(s)	Estimated value
2021 (founding year)	Ecorbit	KKR and Taeyoung Group	3 trillion won
2020 (founding year)	SK Rent-a-Car	SK Networks	600 billion won
2019	DIG Airgas	Macquarie Capital	5 trillion won
2019	Lotte Card	MBK Partners	3 trillion won
2017	Modern House	MBK Partners	1 trillion won
2019	Hanatour	IMM Private Equity	400 billion won
2020	Genuone Sciences	IMM Private Equity	1 trillion won
2019	Yeogi Eottae	CVC Capital Partners	1.5 trillion won
2010	Lotte Chemical Titan in Malaysia	Lotte Chemical	$1.3 billion
2019	Gong Cha	TA Associates	600 billion won
2020	PreedLife	VIG Partners	1 trillion won
2017	Nox	TPG	1 trillion won
2019	Lotte Non-life Insurance	JLK Partners	2 trillion won
2019	Geo-Young	Blackstone	2 trillion won
	Asiana Airlines' cargo operations	Asiana Airlines	500 billion won
Note: The Korean won was quoted at 1,364.1 won to the dollar on April 11

SK Group, South Korea’s No. 2 conglomerate, is aggressively working to shed non-core assets.

The parent group of chipmaker SK Hynix Inc. is in negotiations with potential buyers of SK Rent-a-Car Co., worth an estimated 1 trillion won.   

SAMSUNG ELECTRONICS, LG ELECTRONICS

Samsung Electronics Co. is looking into bolstering the automotive electronics business through M&As. It is reportedly vying for Johnson Controls International’s heating, ventilation and air conditioning (HVAC) assets worth over $6 billion.

Its local rival LG Electronics Inc. also wants to strengthen its HVAC operations through the purchase of a foreign company in partnership with a global private equity firm, according to industry sources.

Among the private equity firms, MBK is likely to lead the pack, putting Lotte Card, home furnishing company Modern House and Homeplus up for sale.

GAMING DEVELOPERS

Gaming developers such as NCSoft Corp. and Krafton Inc. are expected to galvanize the M&A market as well. Last year, NCSoft hired Park Byung-moo, chief executive of Seoul-based private equity firm VIG Partners, as a co-CEO.

“We have reviewed about 350 companies (for an M&A),” said a Krafton official. The developer of the battle royale game PUBG: Battlegrounds is preparing to clinch a mega M&A deal within the year.

Acquisition debt costs have stabilized to the 6-7% range from double digits last year. Compared to the 3-4% range in 2021, they are still higher.

However, investment bankers said that interest rates will likely remain stable for the remainder of the year.

“It usually takes more than six months to close a deal after (M&A) negotiations begin,” said one of the investment bankers.

“Most of the companies, which are looking into M&As, expect interest rates not to rise, even if they aren't coming down, until they sign a deal.”

(The first paragraph was corrected on April 18: 22.3 trillion won worth of assests in Korea are expected to be put on the market by the end of June, not expected to be closed)

Write to Jun-Ho Cha, Jong-Kwan Park and Ji-Eu Ha at Chacha@hankyung.com

Yeonhee Kim edited this article.