Skip to content
  • KOSPI 3229.85 -12.80 -0.39%
  • KOSDAQ 1042.54 -1.59 -0.15%
  • KOSPI200 427.43 -2.06 -0.48%
  • USD/KRW 1154.8 4.60 0.40%
  • JPY100/KRW 1,050.82 3.14 0.30%
  • EUR/KRW 1,367.92 8.56 0.63%
  • CNH/KRW 177.24 -0.36 -0.20%
View Market Snapshot

M&As

Korean companies sit on record dry powder, may open M&A floodgates

By Jan 04, 2021 (Gmt+09:00)

M&A activity is set for revival with ample cash reserves at major Korean companies.
M&A activity is set for revival with ample cash reserves at major Korean companies.

South Korea’s major companies are sitting on a record amount of cash reserves, setting the foundation for the merger and acquisition (M&A) floodgates to open as executives explore their post-pandemic future.

According to industry tracker FnGuide, Korean companies listed on the Korea Exchange held a record 533.68 trillion won ($493.3 billion) in cash reserves at the end of September 2020. That’s up 85 trillion won from the start of 2020 and marks a fourfold increase from a gain of 22 trillion won in all of 2019.

Cash reserves are a company’s total value of cash on hand, cash equivalents and short-term investment securities.

Korean firms hoarded cash amid worsening economic conditions after the outbreak of the COVID-19 pandemic in early 2020. They also aggressively raised capital through corporate bond issues. Kospi-listed companies’ total borrowings rose to 134.16 trillion won at the end of the third quarter of 2020, up 64.1% from a year earlier.

Samsung Electronics Co. had 116.26 trillion won in cash reserves at end-September, a 13 trillion won increase from the end of 2019. While Hyundai Motor Co. amassed 2 trillion won in the cited period to 18.49 trillion won, POSCO accumulated 5.6 trillion won to 17.73 trillion won. SK Corp.’s cash reserves rose by 3.3 trillion won to 15.91 trillion won.

DRY POWDER IN RECORD AMOUNTS

Graphics by Jerry Lee
Graphics by Jerry Lee

Analysts say the record amount of cash reserves at major companies sets the stage for megadeals as corporates eye M&As to grow big in the post-COVID era. Easy access to financing amid the ultra-low interest rates also whets their appetite for mergers and acquisitions, they said.

“The pandemic has drawn a clear line between the rising industries and the falling industries. Even in the same sector, there are clear winners and losers, forcing companies to seek M&As to strengthen their business portfolios,” said an investment banking industry official.

EXECUTIVE RESHUFFLES AIMED AT DRIVING M&As

Recent executive reshuffles at big companies show they are gearing up for potential acquisitions by posting dealmakers as chiefs of business divisions in charge of M&As or related departments.

SK Group, one of the most aggressive M&A seekers, promoted Choo Hyeong-wook, head of SK Investment Center 1, to become the president and co-CEO of SK E&S Co., the energy, chemicals and ICT unit of the group.

Known for nurturing copper foil, a key material in rechargeable batteries, as SK Group’s key future business, Choo is expected to lead SK E&S’ push for M&As in the renewable energy sector.

SK Telecom Co. CEO Park Jung-ho was promoted to the group’s vice chairmanship to jointly spearhead SK Hynix Inc.’s M&A efforts with the chipmaker’s CEO Lee Seok-hee, who once worked at Intel Corp.

SK Hyynix has vowed to triple its NAND flash memory sales within five years, buoyed by its October acquisition of Intel’s NAND memory and storage business for $9 billion.

At LG Electronics Inc., Cho Ju-wan, vice president of the home appliance giant’s Chief Strategy Office (CSO) division, is widely expected to lead the group’s M&As.

The CSO division, control tower of LG’s future businesses and digital transformation, played a key role in the $1 billion electric car gear joint venture deal between LG Electronics and US auto parts maker Magna International Inc. in December.

LG Electronics recently hired Lee Choong-sub, a Credit Suisse executive, to join its CSO division.

CJ Group appointed Choi Eun-seok, its chief business strategy officer, as the CEO of CJ Cheiljedang Corp.

Choi, the point man for strategy and finance within CJ Group, took charge of the group's partnership deal with Naver Corp. and led CJ Cheiljedang's acquisition of US frozen food company Schwan's.

Hyundai Motor acquired Boston Dynamics for almost /> billion in December 2020.
Hyundai Motor acquired Boston Dynamics for almost $1 billion in December 2020.


2021 M&A TARGETS

With major corporates holding a record amount of cashable assets, investment bankers are paying close attention to some potential megadeals set for 2021.

Local private equity firm Hahn & Co. is widely expected to unload its majority stake in Hanon Systems Corp., a Korean auto parts maker with an estimated enterprise value of 10 trillion won, this year.

Yogiyo, the country’s second-largest food delivery app, is on the block, after its owner, German-based Delivery Hero SE, decided to sell the business to acquire Korea’s No. 1 food delivery player Baedal Minjok. Yogiyo is thought to be worth at least 2 trillion won.

Doosan Machine Tools and SK Lubricants, estimated at 2 trillion won each, are also up for grabs in the local M&A market.

GLOBAL PHENOMENON


M&A activity is clawing its way back from near-decade lows in 2020 globally. The investment banking industry this year expects to see the largest global M&A market since 2007.

According to data compiled by Bloomberg, more than $1.3 trillion of M&A deals were announced in the fourth quarter of 2020 alone.

S&P Global Inc.’s all-stock $39 billion acquisition of IHS Markit Ltd. followed technology megadeals such as chipmaker Advanced Micro Devices Inc.’s $35 billion purchase of Xilinx Inc. and Salesforce.com Inc.’s agreement to buy Slack Technologies Inc. for $27.7 billion including debt.

Other major deals clinched in 2020 include Japan’s NTT Group’s purchase of NTT Docomo for $40.3 billion, AstraZeneca plc.’s $39.1 billion deal to acquire Alexion Pharma, and Nvidia Corp.’s acquisition of ARM Ltd. for $34.5 billion.

The active M&As have also pushed up the share prices of investment bankers such as Goldman Sachs and Morgan Stanley. Shares of private equity funds like Blackstone Group and KKR & Co Inc. rose to their highest points in recent weeks.

Write to Geun-Ho Im and Sang-eun Lucia Lee at eigen@hankyung.com

In-Soo Nam edited this article.

Comment 0

0/300