Korean M&A market recovering; private equity deals to increase

Paul DiGiacomo, Managing Partner and Head of Financial Sponsors Group, BDA, was interviewed in Seoul Economic Daily.

“The M&A market is expected to recover in earnest starting next year. With interest rates falling, and the uncertainty around the US presidential election resolved, M&A transactions are likely to increase through 2026-2027.”

“Most Asian markets, except for India, were sluggish through the first half of 2024. However, they’re recovering, with 75% of annual transactions concentrated in the second half,” DiGiacomo noted.

He outlined three key reasons for the market recovery:

• The increase in private equity funds’ dry powder
• The downward trend in interest rates
• The resolution of policy uncertainty following US elections

He predicted, “It will take 2-3 years just to deploy the dry powder accumulated by PEFs, who could not execute during the COVID pandemic due to high interest rates.”

He also expects an increase in the sale of overseas assets and carve-outs by large corporations in the Korean market. Notably, the recent sale of Doosan Energy’s Indian subsidiary, Doosan Power Systems India (DPSI), to local real estate company Casagrand Builder.

“The first target of restructuring for large corporations will be overseas assets; this is a necessary step to enhance competitiveness in their core businesses.”

“PEs are particularly attracted to assets that guarantee stable sales through long-term contracts with parent companies, or assets that can reduce unnecessary labor costs and brand usage fees resulting from consolidation by large companies. There are instances where PEFs acquire businesses that have shrunk due to poor industry conditions and can rapidly increase corporate value through external growth or margin improvements with minimal restructuring.” He cited the waste management industry as a prime example of PEF-led consolidation. He noted that high-risk industries, such as new drug development and industries facing significant policy uncertainty, like rechargeable batteries, are less attractive to private equity.

DiGiacomo described the recent increase in transactions between PEFs as a “natural phenomenon.” He explained that “Strategics are focusing on holding cash and maintaining asset liquidity due to the slump in major industries such as semiconductors and rechargeable batteries, as well as ongoing policy uncertainty. As the industry enters a boom period, transactions between strategic investors and PEs will increase, leading to a symbiotic relationship.” He further noted, “This P2P format will involve overseas private equity selling to local funds or local funds selling to overseas PEs, resulting in transactions where LPs do not overlap.”

“Most GPs want to attract overseas LPs but don’t know how to go about it. A good strategy would be to create touchpoints with overseas LPs through secondary deals or continuation funds.”

He identified promising areas for future investment, including software, environmental industries, K-food, and K-beauty.

“Five years ago, strategics were the main investors in the software sector, but now PEs are actively engaging. For example, Skylake Equity Partners, which has a strong understanding of IT, is increasing its investment in software. As the semiconductor industry recovers, advanced materials companies will attract attention.” Industries related to the circular economy, such as water treatment and climate change solutions, also look promising.

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About BDA Partners

BDA Partners is the global investment banking advisor for Asia. We are a premium provider of Asia-related advice to sophisticated clients globally, with over 25 years’ experience advising on cross-border M&A, capital raising, and financial restructuring. We provide global reach with our teams in New York and London, and true regional depth through our seven Asian offices in Mumbai, Singapore, Ho Chi Minh City, Hong Kong, Shanghai, Seoul, and Tokyo. BDA has deep expertise in the Chemicals, Consumer & Retail, Health, Industrials, Services, Sustainability and Technology sectors. We work relentlessly to earn our clients’ trust by delivering insightful advice and outstanding outcomes.

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