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Private equity

Private equity exits tipped to lead S.Korea's Q4 M&A market

PEFs-led M&A deals in South Korea projected at about $20 billion in Q4, similar to Q3's level

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

Ssangyong C&E, owned by Hahn & Co., is expected to seek a new owner in the coming months.
Ssangyong C&E, owned by Hahn & Co., is expected to seek a new owner in the coming months.

South Korea's M&A market, which has enjoyed record levels of activity so far this year, is expected to remain buoyant for the remainder of the year as private equity firms are ramping up exit efforts.

With PE firms under growing pressure from limited partners to make redemption of investments before interest rates rise further, investment bankers are now scurrying to find suitable buyers for the PE houses' assets, instead of placing the assets on the market, to close deals faster.

Among the South Korean companies a majority owned by PE firms, slightly over 20 trillion won ($17 billion) worth of companies are likely to change hands or being placed on the market during the current quarter, according to a study by Market Insight, the capital news outlet of The Korea Economic Daily, on Oct. 3. The estimate is similar to the third quarter's number of around 20 trillion won.

Hanon Systems Corp. will likely lead the pack. Seoul-based Hahn & Co. is in the process of selling its 70% stake in the country's leading heat pump systems supplier for carmakers, in a deal worth about 8 trillion won.

Bodyfriend Inc., a massage chair brand estimated at 3 trillion won, has been up for sale by VIG Partners. Other M&A deals expected to take place by year's end include Hyundai LNG Shipping Co., South Korea’s top liquefied natural gas tanker operator; the South Korean and Japanese operations of Burger King; and A TwoSome Place, a coffee and dessert franchise. They are worth several hundred million dollars, respectively.

PE firms are trying to jump on the last low-interest-rate bandwagon, before the US Federal Reserve scales back its massive asset purchase program. The Bank of Korea is expected to make another interest rate hike within the year, after raising the policy rate by 25 basis points to 0.75% in August of this year.

Higher interest rates increase financing costs for PE deals and make it difficult for sellers to raise the price tag of their assets, which in turn would lead to exit delays.

"A project investment, which previously would have raised enough money without difficulty, was rejected by a mutual aid association during its reviewing process," a Seoul-based PEF source told Market Insight. "I felt the atmosphere has changed. Big investors are now more scrupulous about making new commitments than before."


The cooling investor sentiment spilled over to the domestic corporate bond market. On Oct. 1, DTR Automotive Corp., an automotive battery and tire maker, failed to sell the planned 150 billion won worth of new bonds to domestic institutions. The bond issue was set to finance its 2.4 trillion won acquisition of Doosan Machine Tools Co. from MBK Partners.  

Despite offering 0.5 percentage points over the average rate paid by other  Korean companies with the same credit rating of single-A, DTR's new debt has attracted 108 billion won from institutional investors and the unsold portion was taken over by the underwriters.

With only 190 billion won in cash reserves when it announced the purchase of Doosan Machine in August, DTR has raised an additional 1 trillion won from financial institutions in acquisition financing at an annual rate of 4%.
(Courtesy of Doosan Machine Tools)
(Courtesy of Doosan Machine Tools)

Between 2017 and 2018 when the Bank of Korea had jacked up interest rates by 50 basis points to 1.75%, PE firms had made swift exits of South Korean assets.

The Carlyle Group had sold ADT Caps, a securities service firm, to SK Telecom Co. for 3 trillion won and MBK Partners unloaded ING Life Insurance Co. to Shinhan Financial Group for 2.3 trillion won. Hahn & Co. sold Woongjin Foods Co. to Uni-President Enterprises Co., a leading Taiwanese food brand, for 260 billion won during the period.


Backed by plenty of market liquidity, medium-sized South Korean conglomerates and lesser-known private equity firms had joined the ranks of buyers and competed with bigger rivals to take coveted assets this year, even for cross-border deals.

Now they may not need to undergo intense competition in a buyer's market. 
"Under the current market environment, if a buyer makes a serious bid, any PEF will accept the offer," said a global investment bank's senior manager.

To take advantage of what would be the last market boom before central banks shift to monetary tightening, investment bankers put their focus on arranging proprietary deals, instead of making them public. 

They are drawing up a list of would-be buyers based on their financial conditions and expected synergy from an acquisition deal, before matching them with PEF sellers.

"Our year-end performance will depend on how neatly we can set a dining table to cater to clients, rather than setting up a beautiful buffet," the investment banker added.

PEF-owned companies tipped to be up for sale between Q4 2021 and Q1 2022

Company Name Business Majority Owner Estimated Value
Modern House Home decor accessories MBK Partners 3 trillion won
Ssangyong C&E Cement Hahn & Co 2 trillion won
EMK Waste management IMM Investment 1 trillion won
Lock & Lock Food containers Affinity Equity Partners 1 trillion won

Write to Jun-ho Cha, Jong-woo Kim and Hyunil Lee at

Yeonhee Kim edited this article.

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