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SOUTH KOREA: An Introduction to Corporate/M&A

Due to the COVID-19 pandemic, the year 2020 has been marked as one of the most unusual years of the past decade, if not longer. The M&A market in Korea has certainly been no exception. While mergers and acquisition were successfully closed in the first quarter, those transactions were, by and large, fruits of the efforts made the previous year. The number of deals announced dropped significantly in the second quarter and the third quarter, followed by a rebound in the fourth quarter.

To break this trend down further, we have seen a remarkable decrease in the number of successfully closed cross-border outbound M&A deals by Korean corporations. This trend, of course, results from delays or suspensions of transactions due to, among other things, travel restrictions and lockdowns in overseas jurisdictions that constitute favoured destinations by Korean corporations for their outbound acquisitions. Amidst such limitations, however, we bore witness to one of the largest and most significant outbound M&A transactions conducted by a Korean corporation, namely, the acquisition by SK Hynix of Intel’s NAND flash memory business for USD9 billion, which was announced in October 2020.

In respect of cross-border inbound M&A transactions, the adverse effect caused by the pandemic has not been as pronounced. Since Korea remains an attractive investment destination for global private equity funds and multinational corporations, while there have been temporary setbacks in the overall timeline of transactions, on a case-by-case basis, most market players have remained quite active in seeking out attractive targets to fill their investment needs.

In response, many private equity firms (both domestic and global) have sought to divest their existing portfolio companies as they approach their investment horizons. In connection, we are also witnessing an increase in the volume and frequency of PE-to-PE deals. For example, the sale of Daesung Industrial Gas by MBK Partners to Macquarie PE and the sale of Health Balance by Anchor Equity Partners to TPG Capital, both announced in the first quarter of 2020, are good examples of the Korean M&A market becoming more and more receptive to the idea of secondary deals from one private equity firm to another - a phenomenon not visible until recent years.

Multinational conglomerates - whether headquartered in Korea or overseas - also continued to divest their non-core businesses located in Korea, while at the same time continuing to look for strategic targets. A good illustrative example of the former would be the sale by Prudential Financial of its wholly-owned insurance subsidiary in Korea to KB Financial Group for KRW2.3 trillion (approximately USD1.9 billion). A good example of the latter is the proposed acquisition by Delivery Hero of Woowa Brothers, the leading food delivery platform in Korea in terms of market share by revenue, a transaction valued at approximately USD4 billion. Both transactions would qualify as two of the largest M&A transactions in Korea during 2020.

Buyouts were not the only trend in the Korean M&A market in 2020. Many private equity firms continued to expand their portfolio by making minority investments in growth-focused targets, as well as established businesses owned by chaebols (family-controlled conglomerates). For example, in the fourth quarter of 2020, TPG Capital invested KRW250 billion (approximately USD222 million) for a 2.7% equity stake in Kakao Bank, a mobile banking app in Korea. In December 2020, Glenwood Private Equity announced its acquisition of 22.6% ownership in CJ Olive Young, a leading and globally recognised operator of health and beauty shops in Korea for KRW414 billion (approximately USD366 million). Several global private equity sponsors also made private minority investments in publicly listed and traded enterprises (so-called PIPE transactions) in amounts that were far from being 'minor'. In the second quarter of 2020, The Carlyle Group initially invested KRW240 billion (approximately USD200 million) in KB Financial Group in the form of convertible bonds, with a plan to subsequently increase its investment by another KRW260 billion (approximately USD215 million). A portion of the amount invested was used to finance KB Financial Group’s acquisition of the Korean subsidiary of Prudential Financial, as described above. In the third quarter of 2020, Affinity Equity Partners and Baring Private Equity together made minority investments in the aggregate amount of KRW1.58 trillion (approximately USD1.4 billion) in Shinhan Financial Group.

From an industry standpoint, the targets of the aforementioned market activities were diverse, ranging from consumer and financial services to technology sectors, while there has been increased focus, albeit on a smaller scale, on sectors that have proven themselves to be resilient to, if not more benefitted by, the economic downturn caused by the pandemic.

As noted above, despite the negative effects caused by the pandemic, the Korean M&A market remains robust and active. While the pandemic has not yet quite subsided, most market participants would agree that in order to survive competition, they have learned, and will continue to learn, ways to execute transactions in an 'untact' - or contactless - manner through adoption of technology and innovative know-how. We note that the volume and level of global M&A activities have surged over the past several months, partially fuelled by the availability of sufficient sources of funds in the US, including through public listings of many SPACs. While such acquisitions are currently limited to targets in the US market, we cautiously anticipate that such activities could have a spillover effect on other key markets in Asia, not to mention Korea.