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Battery materials

Korea’s major firms look for M&A targets in battery materials business

By May 06, 2021 (Gmt+09:00)

POSCO Chemical researcher runs quality tests on battery cells
POSCO Chemical researcher runs quality tests on battery cells

South Korea’s major companies are looking for merger and acquisition opportunities in the rechargeable battery materials sector, which is growing rapidly in tandem with increasing sales of electric vehicles.

According to the investment banking industry on May 6, the country’s leading battery makers including LG Chem Ltd. and SK Innovation Co. as well as non-battery enterprises such as Lotte and GS Group are seeking M&As or investments in battery materials companies.

Early this year, Lotte Chemical Corp. declared that it will actively look for an acquisition target in the areas of raw materials used in future mobility such as electric cars.

Last week, LG Chem posted record revenue and operating profit for the first quarter and said during a conference call with analysts that it is seeking an M&A or a joint venture in the battery materials business.

The company is considering taking over battery separator facilities from LG Electronics Inc. and acquiring a certain stake in Daejoo Electronic Materials Co., a Korean maker of cathodes, a key material in EV batteries.

Meanwhile, the SK Group, the country’s third-largest conglomerate, is also looking for battery materials-related M&A targets through its affiliates SK Innovation, SK Inc. and SKC Inc.

GROWING INTEREST IN ANODE MAKERS

Industry watchers said the companies are especially interested in makers of anodes, which account for about 40% of the manufacturing cost of EV batteries.

Among potential targets for acquisition are domestic battery materials makers such as EcoPro BM Co., L&F Co., POSCO Chemical Co. and Cosmo Advanced Materials & Technology Co.

Korea’s major firms look for M&A targets in battery materials business

Both EcoPro and L&F have an annual anode production capacity of 50,000 tons, respectively. POSCO Chemical can manufacture 40,000 tons of anodes a year and Cosmo can make 10,000 tons annually.

While LG Chem secures about half of its anode needs through a company it earlier acquired, Samsung SDI Co., another big battery maker, is receiving anodes via a joint venture with EcoPro.

SK Innovation, however, is purchasing almost all anodes from outside suppliers.

HURDLES TO M&As

Analysts said the companies seeking to acquire material makers may face a hurdle in their pursuit of M&As as most suppliers count several battery makers as their clients, making it difficult to become a sole provider to a certain company.

So, non-battery conglomerates such as Lotte and GS could be better positioned to buy into makers of EV materials, they said.

Industry officials said the GS Group shows interest in Cosmo Advanced Materials & Technology.

GS acquired Daejung EM, a domestic battery material maker, in 2013 but sold the business to LG Chem in 2016.

The Lotte Group, which participated in bidding for Doosan Solus Co., a copper foil manufacturer, is also known to be looking for an EV battery maker.

Construction site of a plant for lithium extraction — Hombre Muerto Salt Lake, Argentina (Courtesy of POSCO)
Construction site of a plant for lithium extraction — Hombre Muerto Salt Lake, Argentina (Courtesy of POSCO)

With growing sales of electric cars, shares of battery materials makers are trading at elevated levels, making them expensive M&A targets.

Shares of EcoPro BM, L&F and POSCO Chemical are trading at a relatively high price-earnings ratio (PER) of between 100 and 150 times.

Given the high price tag, conglomerates may prefer undervalued overseas battery materials makers, analysts said.

“We understand several Korean big companies are looking at lesser-known foreign materials makers,” said a battery industry official.

Write to Jun-Ho Cha at chacha@hankyung.com

In-Soo Nam edited this article.

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