Key Takeaways
- • Global private equity groups now account for a majority of large buyout deals in South Korea, with foreign firms, alone or in consortium with domestic investors, responsible for more than 80 per cent of takeovers above Won500bn ($370mn) so far this year, according to Dealogic.
- • Foreign share of large Korean buyouts rose from about 60 per cent last year and just over 10 per cent four years ago, reflecting a sharp shift as investors look beyond Japan.
- • Total South Korean buyout volume rose about 3 per cent to $7.8bn through end-September compared with the same period last year, with deals above Won500bn accounting for about half.
- • Succession pressures among ageing founders, inheritance tax of up to 60 per cent for controlling shareholders, and chaebol portfolio downsizing are the main catalysts for deal flow.
- • Regulatory scrutiny has tightened: prosecutors are investigating MBK Partners over Homeplus bonds, lawmakers have proposed more than a dozen bills, and local PE fundraising fell to $2.6bn this year from $14.4bn last year.
Summary
Global private equity groups now make up a majority of large buyout deals in South Korea, a sharp increase from recent years as the sector looks for the next frontier after Japan. According to Dealogic data, foreign firms, either independently or in consortium with domestic investors, accounted for more than 80 per cent of private equity takeovers above Won500bn ($370mn) so far this year, up from about 60 per cent the previous year and just over 10 per cent four years ago.
Advisers say Asia's fourth-largest economy shares many of the conditions that made Japan a private equity hotspot, including corporate carve-outs, governance reforms and ageing founders. David Sim, a partner at PwC, noted that few Asian markets other than Japan and Korea offer large-size deals for global buyout funds. Japan still dominates regional deployment, accounting for more than a quarter of private equity investment in Asia last year, while South Korea accounted for 11 per cent, according to Deloitte. Geopolitical tensions are also prompting investors to reduce China exposure.
Total buyout volume in South Korea rose about 3 per cent to $7.8bn through September compared with the same period last year, according to Dealogic. Icksoo Jung, head of Korea for Carlyle's Asia buyout platform, described the country as a "core market" for the firm's Asia operations and said deal sizes are growing as the economy matures. Succession is a major catalyst: like Japan, South Korea has an ageing population, and inheritance tax of up to 60 per cent for controlling shareholders makes intergenerational transfers difficult, according to Jung and Younggun Kim, a partner at EY Parthenon. Carlyle's recent acquisition of water purifier maker Chungho Nais was cited as an example.
Corporate restructuring is also driving activity. New minority shareholder protection laws have encouraged investors to press chaebol to downsize. Lotte Group sold its car rental business to TPG this year, and SK Group sold stakes in its renewable energy businesses to KKR last year to redirect capital toward AI and semiconductors. Jaehoon Ahn, head of Korea investment banking at Goldman Sachs, said investor interest extends from chipmakers such as SK Hynix and Samsung Electronics to equipment makers, power generation and transformer suppliers.
Foreign private equity is also filling a gap left by local firms amid heightened regulatory scrutiny following the near collapse of Homeplus, a supermarket chain undergoing debt restructuring. South Korean prosecutors are investigating MBK Partners, which bought the chain with co-investors in 2015, over alleged fraud related to issuing Homeplus bonds despite knowing of an impending credit rating downgrade. Lawmakers have introduced more than a dozen bills to tighten oversight of local private equity groups, and the National Pension Service has paused commitments to domestic firms. As a result, local sector fundraising has fallen to $2.6bn so far this year from $14.4bn last year, according to Dealogic.
Advisers say Asia's fourth-largest economy shares many of the conditions that made Japan a private equity hotspot, including corporate carve-outs, governance reforms and ageing founders. David Sim, a partner at PwC, noted that few Asian markets other than Japan and Korea offer large-size deals for global buyout funds. Japan still dominates regional deployment, accounting for more than a quarter of private equity investment in Asia last year, while South Korea accounted for 11 per cent, according to Deloitte. Geopolitical tensions are also prompting investors to reduce China exposure.
Total buyout volume in South Korea rose about 3 per cent to $7.8bn through September compared with the same period last year, according to Dealogic. Icksoo Jung, head of Korea for Carlyle's Asia buyout platform, described the country as a "core market" for the firm's Asia operations and said deal sizes are growing as the economy matures. Succession is a major catalyst: like Japan, South Korea has an ageing population, and inheritance tax of up to 60 per cent for controlling shareholders makes intergenerational transfers difficult, according to Jung and Younggun Kim, a partner at EY Parthenon. Carlyle's recent acquisition of water purifier maker Chungho Nais was cited as an example.
Corporate restructuring is also driving activity. New minority shareholder protection laws have encouraged investors to press chaebol to downsize. Lotte Group sold its car rental business to TPG this year, and SK Group sold stakes in its renewable energy businesses to KKR last year to redirect capital toward AI and semiconductors. Jaehoon Ahn, head of Korea investment banking at Goldman Sachs, said investor interest extends from chipmakers such as SK Hynix and Samsung Electronics to equipment makers, power generation and transformer suppliers.
Foreign private equity is also filling a gap left by local firms amid heightened regulatory scrutiny following the near collapse of Homeplus, a supermarket chain undergoing debt restructuring. South Korean prosecutors are investigating MBK Partners, which bought the chain with co-investors in 2015, over alleged fraud related to issuing Homeplus bonds despite knowing of an impending credit rating downgrade. Lawmakers have introduced more than a dozen bills to tighten oversight of local private equity groups, and the National Pension Service has paused commitments to domestic firms. As a result, local sector fundraising has fallen to $2.6bn so far this year from $14.4bn last year, according to Dealogic.
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