Talking about a revolution: South Korean tech prowess lures Middle Eastern investors

Data InsightDealspeak 15 February

Talking about a revolution: South Korean tech prowess lures Middle Eastern investors

South Korea’s tech companies, particularly software developers producing intellectual property (IP) content, games and cloud management, are pulling in ever-increasing investment from the Middle East.

Middle Eastern investors traditionally have been big fans of South Korean oil and energy firms. Yet, thanks to the fourth industrial revolution and advent of digitalization, as well as the booming popularity of K-content worldwide, investors are shifting direction.

On 15 January, United Arab Emirates (UAE) pledged to invest USD 30bn in South Korea across a variety of industries including energy and defense, boosting economic co-operation between the two nations.

According to Dealogic data, UAE has been the most prolific investor in South Korea since 2012, cutting 12 deals for USD 11.4bn, followed by Saudi Arabia (five deals for USD 6.3bn), Israel (two, USD 93m), and others such as Kuwait and Oman, each recording one deal.

In it for IP

Kakao Entertainment, a South Korean entertainment company, last month announced that it had raised USD 924m, equivalent to a 10.21% stake sale, from Saudi Arabia’s sovereign Public Investment Fund (PIF) and Singapore’s sovereign wealth fund, GIC.

“This investment speaks directly to the strength of our IP value chain, global competitiveness and the vast growth potential of K-culture”, Lee Jin-soo, KaKao Entertainment’s co-chief executive told this news service.

“We are excited to continue creating more great content for fans of Korean culture and to reach bigger audiences worldwide”, he added. The KaKao co-chief highlighted the extensive value chain of the company’s IP network, giving an example of how its romantic comedy television series Business Proposal has been developed across multi-content platforms using web novels, webtoons, drama, music, and games.

In March 2022, PIF increased its share of NEXON [TYO:3659], a Japan-listed Korean gaming company, to 7.09% from 6.03%. In the previous month, PIF also acquired a 6.69% holding in NCSoft [KRX:036570], a South Korean gaming company. Both NEXON and NCSoft are considered strong producers of IP, from which they have developed a series of games.

Similarly, a gaming industry analyst notes how the popularity and optimistic view of Korean content chimes with consumers in the Middle East and its investors.

He says that Middle East investors look for the potential of IP in Korean games rather than the size of a company. For example, the Ministry of Investment of Saudi Arabia (MISA) and small Korean gaming firm SHIFT UP, which produces the game Goddess of Victory: Nikke, signed a tie-up agreement on 17 November 2022.

The gaming analyst expects the trend of Middle East investors pumping money into promising IP to continue, stating the popularity of Korean games among young Arabs is “not just a fad”.

Cloud and proud

Cloud services companies are also receiving plenty of attention, riding the wave of digital transformation. Emirates Telecommunications Group (e&), a UAE-based telecommunications service group, shelled out USD 60m for an undisclosed stake in Bespin Global, a South Korean cloud management company, in December 2022.

The Middle East is seeing an increasing need for cloud services in wider industries, says a Bespin Global spokeswoman, citing the healthcare sector as one such example.

Over the past five years, there have been 10 inbound Middle East deals, according to Dealogic data, with four of the largest coming in the computers & electronics sectors. The largest transaction saw the sale in 2019 of a 17% stake in Hyundai Oilbank, a South Korean oil refinery company, to Saudi Aramco, a Saudi Arabia-based oil company, for KRW 1.375trn.

By comparison, the majority of inbound Middle East deals into South Korea have focused on the chemicals and oil & gas sectors, according to the Dealogic data. There was a total of 16 deals between 2012 and 2017, with the largest sector deal being PIF acquiring a 38% stake in POSCO Engineering & Construction in 2015 for KRW 1.24trn.

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