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M&As

Failed M&As in Korea now draw excess of candidates with better outlook

Eastar Jet, Daewoo Engineering & Construction attract multiple strong candidates for M&A bidding in June

By Jun 14, 2021 (Gmt+09:00)

3 Min read

Failed M&As in Korea now draw excess of candidates with better outlook

South Korea’s M&A market is heating up as the outlook for the global economic recovery is becoming more comfortable this year.

The M&A deals that were formerly considered too risky, too costly, or even unsalvageable have become attractive investment options, thanks to the rapid rollout of vaccination programs in Korea and the growing business trends of digitalization and streamlining of logistics processes, which are raising up the valuation of the firms across industries.

The case of the cash-strapped low-cost carrier (LCC) Eastar Jet Co. offers a good peek into Korea’s new M&A scene. Eastar Jet, which has more than 1,600 employees, will kick off its final bidding process on June 14.

Until last year, Eastar Jet’s sellout was far from happening. Another LCC Jeju Air Co. was in discussion to buy out its competitor at the end of 2019 but eventually pulled out in July 2020 reasoning that there were “too many uncertainties”.

This year, however, more than 10 candidates are expected to join the bidding hosted at the Seoul Bankruptcy Court. Harim Co., a domestic livestock food company that acquired the shipping company Pan Ocean Co., and another consortium led by the fashion company Ssangbangwool Inc. (SBW) are strong candidates.

“The Eastar Jet deal is drawing a number of strong bidders now because it has cleared up some of its debt relationships,” said an investment banking source.

The story is not too different for Daewoo Engineering & Construction Co. (Daewoo E&C), which the country’s investment banking circle said will take another three to four years before a successful sellout.

Daewoo E&C headquarters in Seoul
Daewoo E&C headquarters in Seoul

Hoban Construction Co., a construction unit under the mid-sized conglomerate Hoban Group, tried to buy Daewoo E&C in 2018 but pulled out after due diligence.

Industry watchers say that Daewoo E&C successfully transformed itself after undergoing a painful restructuring in 2019, when the ownership was changed to KDB Investment Co. under the state-run Korea Development Bank.

Daewoo E&C will be having its preliminary bidding on June 25 through a restricted tendering process. Jungheung Construction Co., Hahn & Co. and IMM PE are expected to join the race.

Doosan Group, which was urgently trying to sell the now-delisted Doosan Engineering & Construction Co. (Doosan E&C), also recently decided to retain the unit and draw new investments. Sources report that the group is currently in discussion with the domestic PE firm Socius PE on investment terms.

THE BUYER’S POINT OF VIEW

Experts say that Korea’s major industry players and PE firms are now becoming more active participants in the country’s M&A market, as they have gained more faith and seen more cases of how the new corporate themes such as ESG and digitalization can significantly raise the companies’ valuation.  

Even the country’s largest business groups such as Hyundai Motor Group and SK Group have significantly increased their market capitalizations by repositioning themselves as ESG leaders.

“Improvements can be made in many areas for the traditional big-name companies that are now in trouble, especially their organizational structures and ways of working. Digitalization can provide them a good solution to boost up valuation,” said the CEO of a PE firm.

Sources say that Daehan Shipbuilding Co., the only company in Korea’s shipbuilding industry still under creditor protection, is now also seen as an attractive target for multiple companies that have plans to set up offshore wind farms. They say the shipbuilding company would have likely stayed as an unsalvageable unit without the recent ESG boom in Korea.  

Others say that the private funds that were tied up last year due to the pandemic-driven uncertainties are now being funneled into the market.

“We can’t delay new investments forever. We must exhaust the funds that were previously set up. Now in Korea, there are some great M&A offerings that can be purchased at reasonable prices and sold at much higher sums after making the much-needed turnaround,” said a representative from another PE firm.

Write to Ji-hye Min and Sang-eun Lee at spop@hankyung.com
Daniel Cho edited this article.
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