Korea Trapped in the Perception of 'M&A = Restructuring'... Unable to Envision the Future (Comprehensive)

South Korea's M&A at One-Third of Japan's Level, Significantly Below Major Countries' Average
Lack of Recognition That 'Mergers and Acquisitions Are a Growth Stepping Stone'
Many Obstacles Like Shareholding Regulations on Holding Companies Not Seen Overseas, Weak M&A Ecosystem Development
High Antitrust Regulatory Barriers in Major Countries May Hinder Large M&As Like Samsung Electronics

[Asia Economy Reporters Lee Hyeyoung and Kim Jinho] It has been revealed that Korean companies lag significantly behind major foreign companies in mergers and acquisitions (M&A). This is largely due to the perception of M&A as ‘corporate restructuring’ rather than industrial growth, which has led to various regulatory obstacles. While major overseas companies actively expand their scale and secure competitiveness through M&A, domestic companies are unable to keep up with the changing times, hindered not only by a lack of government support but also by regulations.

Additionally, the recent increase in entry barriers imposed by major global powers such as the United States, China, and the European Union (EU), which block global companies’ M&A activities, is also cited as a disadvantageous factor. Korean companies are increasingly burdened by the dual challenges of rising anti-business regulations and global acquisition barriers, deepening their concerns.

◇Strict Regulations... Korean M&A One-Third of Japan’s= ‘3202 vs 1063’. This is the number of global M&A deals by Japanese and Korean companies over the past decade. Korean companies’ M&A activities amount to only one-third of those of their competitor Japan. This indicates that domestic companies’ global investments are relatively low, potentially weakening their global competitiveness. Notably, there were no M&A deals in new industries such as healthcare, which are classified as future growth engines. Given that Korea’s stringent corporate regulations have caused this crisis, there are calls for bold regulatory relaxation to be expedited.

According to the Federation of Korean Industries on the 10th, over the past 10 years, the number of M&A deals by Korea’s top 100 non-financial companies by sales was 1,063, which is only 41% of the G5 average (2,598 deals) including the US, Japan, France, Germany, and the UK. Among the G5, the US (3,350 deals) and Japan (3,202 deals) showed overwhelming dominance by exceeding 3,000 deals. This is three times the scale of Korea.

Japan followed with 3,202 deals, then France (2,764 deals), Germany (1,967 deals), and the UK (1,707 deals). Korea’s figure was only 62% of the UK, which ranked lowest among the G5.

The monetary gap was also significant. During the same period, Korea’s M&A amount was $273.7 billion, only 25% of the G5 average ($1.093 trillion). The US recorded $2.8815 trillion, more than 10 times Korea’s amount, and Japan ($884.7 billion) was three times larger. Korea’s amount was only half that of France ($526.2 billion), the lowest among the G5.

In particular, Korean companies’ M&A activities were mostly concentrated in existing industries such as industrial materials. There was not a single M&A deal in so-called future growth ‘new business’ sectors like healthcare. This suggests that Korean companies are blocked from survival routes and are falling behind in securing competitiveness amid fierce global competition.

◇‘M&A as Restructuring’... Korea Held Back by the Past= Experts point out that Korea’s poor performance in the M&A market over the past decade is largely due to domestic M&A regulations and related systems not being supportive. While overseas companies have grown by actively conducting M&A domestically and then aggressively entering the global large-scale M&A market to secure growth engines, Korea lacks such a foundation.

According to the Korea Securities Depository, the number of corporate M&A deals by domestic listed companies last year was only 141. Although this increased from 121 the previous year, it has hovered around 120 to 140 deals over the past five years. Most of these were intra-group transactions. According to the Financial Supervisory Service, intra-group transactions accounted for 50% of domestic M&A over five years. For M&A to lead to corporate growth in the Fourth Industrial Revolution era, cross-industry M&A should be more active, but Korea has not achieved this.

To revitalize the M&A ecosystem, not only capital but also openness to market participants must be enhanced, but Korea is failing to keep pace with global trends. Domestic companies have consistently requested institutional improvements from the government, but only at the end of 2020, after much public opinion consideration, was the Fair Trade Act amended to allow corporate venture capital (CVC) for general holding companies.

Restrictions on affiliate incorporation by holding companies, which cause additional costs such as share purchases, are also cited as factors hindering M&A activation. A representative case is SK’s abandonment of the acquisition of Medison. In 2010, SK enthusiastically pursued the acquisition of the medical equipment company Medison but gave up due to shareholder conflicts and the requirement under the Fair Trade Act that unlisted subsidiaries must have at least 40% ownership, which became a barrier to securing shares.

Even 12 years later, the M&A environment remains challenging. Korean Air, which is pursuing the acquisition of Asiana Airlines, is facing a crisis where its vision for a new leap through corporate integration is threatened by the Korea Fair Trade Commission’s condition to relinquish major routes, potentially leading to a decline in competitiveness.

Yoo Jungjoo, head of the corporate system team at the Federation of Korean Industries, said, "Unlike overseas, Korea applies strong regulations on holding companies’ (subsidiary) shareholding ratios. M&A should be recognized not as restructuring but as mutual growth between companies, including large corporations and SMEs or startups, and institutional improvements and adjustments through this perspective are urgently needed."

◇US and EU Lock Doors on Semiconductors and Advanced Industries= While Korea shows slow M&A movements domestically and internationally, the US and EU have been actively defending M&A in semiconductors and advanced industries, intensifying hegemonic competition.

The US Nvidia’s acquisition of UK-based ARM, dubbed the ‘deal of the century,’ ultimately returned to square one after a year and a half due to antitrust regulatory hurdles from the US, UK, and EU authorities. Taiwan’s GlobalWafers’ plan to acquire Germany’s Siltronic was also canceled last month after the German government refused approval.

Major countries equate fostering advanced industries, including semiconductors, with national security and block acquisitions of domestic companies. Moreover, the US and Europe have introduced bills investing astronomical funds in the semiconductor sector, igniting competition to nurture their own advanced industries.

Domestic major companies, including Samsung Electronics, which had announced ‘meaningful’ M&A this year, are closely monitoring these overseas government moves. Samsung Electronics was expected to pursue M&A in system semiconductors or automotive electronics using about 120 trillion won in cash reserves, but as countries lock doors citing antitrust regulations and technology security, concerns are deepening.

Professor Park Jaegun of Hanyang University’s Department of Convergence Electronics Engineering said, "Regulations on foreign companies’ acquisitions of domestic companies will continue for a considerable time. It is realistically difficult for domestic companies, including Samsung Electronics, to conduct mega M&A, so they need to broaden their perspective to acquisitions of small and medium-sized or innovative startups."

This content was produced with the assistance of AI translation services.