What is the State of M&A Dealmaking in South Korea?

Tell us about the most notable M&A trends since COVID-19.

Sunsik Kim: After the severe drop in the number of deals earlier this year, the South Korean M&A market has recovered since Q2 thanks to early stabilization of COVID-19 and solid economic performance. A lot of restructuring and bankruptcy deals — along with preemptive and market-focused business reorganization — will drive the market in the second half. This year, overall M&A transactions in Korea will stay as active as last year.

Brian Hwang: The most surprising trend is how strong the M&A markets are globally. Even volatile territories like Latin America are showing extreme resilience and dealmakers are looking at extremely rare opportunities to acquire quality assets. The volume stability across the globe is encouraging. From our discussions with bankers, the credit markets are wide-open and financing is readily available, so most conditions are prime for dealmakers.
  
How do you assess the status of the Korean M&A market and its importance in the global market? What do foreign buyers and sellers find attractive about it?

Sunsik: In the past, most M&A were domestic deals but cross-border transactions are on the rise these days. Foreign investors’ increasing appetite for Korea-based companies will continue mainly from financial investors like private equity firms, but strategic investors will also play an important role in such specific sectors as Industrial, TMT (Telecom, Media, Technology) and Bio/Pharma where many Korean companies have core technologies. Outbound deals are expected to rise as we have seen a mega-deal in the semiconductor industry.

Brian: To add, the Korean markets have been remarkably stable this year, despite COVID-19. Our internal deal flow numbers show Korea as the only country in North Asia that did not see negative deal flow in the first half of 2020, compared to the first half of 2019, so the markets have been strong. Intra-country M&A is really driving deal flow and it’s provided a barrier, in a sense, from external influences like COVID-19 and relying too heavily on foreign acquirors.

What is the current state of the market in Korea?

Sunsik: Korean companies have actively engaged in mergers and acquisitions this year despite the coronavirus outbreak and they will continue to focus on their core strengths, shedding non-core business and under-performing assets and using M&A to secure growth engines. The change of corporate governance will help some of the biggest chaebols become involved in large-scale mergers and acquisitions. PEF’s hyper-growth is also noteworthy because a record-high level of dry powder is still waiting to be deployed, which is expected to increase market dynamics in the years to come.

Brian: The global market is exceptionally strong at the moment. While M&A volume may not be record-breaking, it is certainly keeping pace with the high volumes from previous years. All signs currently point to an extended market rally as deals continue to start at a strong pace. What will be interesting for us is understanding the types of deals that are coming out to market; we anticipate that a sizeable number of these deals may be distressed/bankruptcy related, and we will have clearer insight into deal types once they publicly announce. The strongest sectors we are seeing include technology and industrials.

What should dealmakers expect post-COVID-19?

Brian: Post-COVID-19, I think we’ll see a lot of acquirors pivot strategy to reinforce their technology positions and continue to acquire heavily in that sector. We should also see a glut of commercial real estate portfolios being re-evaluated as work-from-home policies for many companies become semi-permanent. Many jurisdictions protected companies from filing for bankruptcy. As those moratoriums expire in early 2021, we’ll probably see more distressed assets coming to market, especially in Europe.   

Sunsik: The obvious impact includes the resurgence of COVID, vaccine completion and adoption rates, etc. that are going to severely impact many industries like travel, hotels, dining — most leisure-related industries that are going to face continued stress until people are comfortable traveling again. Commercial real estate is also an area of concern as companies re-evaluate their portfolio sizes and establish partial work-from-home policies for the extended future.

Any final thoughts?

Sunsik: Companies in Korea and across the globe are increasingly reliant on technology, both to pursue deals (using VDRs) and as acquisition targets. As remote-working, communications and information sharing become more prominent, and extensions of that, including IT security, network capacities, instant communications and information transfer are required, portals become attractive areas of investment and acquisition for corporates.

Brian: Deals are being done. If you’re a dealmaker sitting on the sidelines, others are actively pursuing opportunities. We’re not facing some of the challenges you might expect like valuation gaps, credit crunches, etc. We anticipate a strong number of assets becoming available, especially as distressed deals become more prominent, with government support measures expiring, so it’s currently both a buyer’s and a seller’s market at the moment.