Stealing the show: financial sponsors drive South Korean 1H23 M&A

Data Insight Dealspeak 24 July

Stealing the show: financial sponsors drive South Korean 1H23 M&A

By Jenny Lee

Persistent capital markets turmoil and soaring interest rates are taking their toll on South Korean M&A. According to Mergermarket data, there were 410 deals agreed for USD 2.3bn in 1H23, down from 467 deals worth USD 3.1bn in 1H22. M&A transactions have fallen 13.9%, while deal volume has tumbled 34.78% over the past year.

Despite the challenging economic climate, activity among financial sponsors remains robust, and they stole the show delivering the top-ranking M&A deals in 1H23. Among the headline numbers:

Financial sponsors’ exits totaled USD 4.2bn across 13 deals, marking a 46.15% year-on-year (YoY) increase in deal count and 74.52% YoY growth in deal value.
Financial sponsors’ buyout activities generated USD 3.12bn from 12 deals, representing a 42.8% YoY decline in deal count and 29.5% YoY fall in deal value.
There were 41 inbound deals worth USD 4.4bn, a rise of 51.85% YoY in deal count and 2.22% YoY in deal value.
There were 66 outbound deals for USD 2.5bn, a 20.48% YoY decrease in deal count and 65.22% YoY drop in deal value.
Healthcare and Computers & Electronics are the two most popular sectors since 2021.

Global appeal

Financial sponsors from overseas accounted for the top two inbound deals in South Korea in 1H23. In March, Swedish private-equity (PE) firm EQT Partners acquired a 65.69% stake in SK Shieldus, a Korean security group, for around USD 1.54bn from SK Square [KRX:402340], an investment holding company of SK Group, according to Mergermarket data.

The second-largest deal was made in January by Saudi Arabia’s sovereign investment body, Public Investment Fund (PIF), and Singapore’s sovereign wealth fund, GIC, which injected USD 928m into KaKao Entertainment, the domestic entertainment division of internet giant KaKao [KRX:035720], to spur global expansion.

In PE, the largest deal was IMM PE’s partial exit from industrial gas producer Air First by selling a 30% interest to BlackRock [NYSE:BLK] for USD 849m.

Strategics stay strong

South Korean strategic players dominated the top two outbound deals, which were both carried out in North America.

SK Inc [KRX:034730], a holding company for South Korean SK Group, invested an additional USD 300m in 8 Rivers Capital, a carbon capture tech firm based in North Carolina, the US, in March to expand its clean tech business following an initial USD 100m investment last year.

Entertainment Giant HYBE [KRX:352820] announced plans in February to acquire 100% of music management company QC Media, headquartered in Georgia, the US, for USD 249m to strengthen its foothold in North America. SK Biopharm [KRX: 326030] is also seeking global targets, as the company announced this month.

What’s to come?

PE exits are likely to sustain Korean deal flow for the rest of this year thanks to a strong pipeline. Blackstone’s Geo-Young, the largest pharma product distributor, and MBK Partner’s golf resort business are both on the market; Morgan Stanley PE’s sale of paper manufacturer Jeonju Paper, Affirma Capital’s sale of restaurant chain company MFG Korea, and Anchor Equity Partner’s sale of cosmetic maker Dermafirm are ongoing; while Hahn & Co is also reportedly looking to sell its oil banker and remicon business this year.