Materials, parts makers drive Korea's 2021 M&A boom

Materials, components and equipment makers drove South Korea's mergers and acquisitions market to a record high last year, with smaller deals involving unlisted companies surpassing those for listed firms in value for the first time in the country.

As South Korea's electric vehicle battery makers -- LG Energy Solution Ltd., SK Innovation Co. and Samsung SDI Co. -- were ramping up facility investments and striving to cut reliance on foreign suppliers, domestic parts manufacturers came on their radar. 

A total of 939 M&A deals were announced in South Korea last year, up 30% from a year earlier, according to the Korea M&A Exchange, which tracks M&A transactions disclosed via the country's regulatory filing systems.

By value, the deals were worth a combined 58 trillion won ($49 billion), an increase of 10 trillion won on-year.

The data cover mergers, management buyouts, controlling stake sales, key business divestiture, public tender offers and share swaps and transfers.

The 939 deals broke down into 356 cases for listed companies and 583 for unlisted firms.

Deals involving unlisted companies soared 91% to 30.5 trillion won on-year, while those for listed companies decreased 10% to 27.6 trillion won. It was the first time that M&As of unlisted firms exceeded that of listed companies. in South Korea 

“The recent surge in the M&A transaction value stemmed from a sharp increase in M&A deals involving unlisted companies, alongside the increase in bigger-size deals,” the Exchange said in a statement.

As an example, private equity firms are targeting undervalued, family businesses with a global sales network, after abundant market liquidity sent company valuations to record highs.

By sector, materials, components and equipment manufacturers accounted for 12.6% in terms of the number of M&A transactions in 2021. The construction and real estate industries came second with 10%. The logistics and retail sectors made up another 10%.

However, deals for bio companies dwindled from a year earlier.

By M&A type, stock sales represented 55% of the total, worth a combined 32 trillion won, followed by merger deals with 26% or 15 trillion won. But the proportion of business divestiture slid to 3.3% after rising to 31.2% in 2020. 

SMALL-SIZED DEALS

Deal activities gained momentum from the second quarter of last year as companies and funds revived their hunt for buyout targets in the prolonged pandemic era.

Regarding merger deals for listed companies, small and medium-sized deals, or transactions in the range between 30 billion and 500 billion won, accounted for nearly 30% of the total.

The average value of the merger deals stood at 52.1 billion won.

Only four merger deals were each valued at over 1 trillion won, including DL Chemical's $2.5 billion acquisition of Texas-based specialty chemical manufacturer Kraton Corp.

The Korea M&A Exchange keeps track of M&A transactions disclosed at the country’s electronic filing systems managed by the Financial Supervisory Service and the Korea Exchange.

Write to Jun-Ho Cha at chacha@hankyung.com
Yeonhee Kim edited this article.