"Urgent Need for M&A of Overseas Advanced Technology Companies... Acquisition Opportunity for US Startups Facing 'Funding Shortage'"

Publication of the Korea Chamber of Commerce and Industry Report

In advanced technology sectors such as semiconductors, secondary batteries, and bio, a recommendation has been made to activate mergers and acquisitions (M&A) aimed at acquiring technology rather than establishing production bases to enhance the technological capabilities of domestic companies.

The Korea Chamber of Commerce and Industry's SGI (Sustainable Growth Initiative) emphasized this in its report titled "Support Measures for M&A to Enhance the Competitiveness of Domestic Companies in Advanced Technology," released on the 10th, and proposed related policies.

Funding Difficulties of U.S. Startups Present Opportunities for Domestic Companies

Overseas investment by domestic companies is still overwhelmingly dominated by greenfield investments aimed at establishing production bases or branches rather than M&A-type investments for securing technology and management rights. The proportion of greenfield investments in domestic companies' overseas investments reached 67% as of last year.

Trends in M&A and Greenfield Overseas Investments
[Image source: Korea Chamber of Commerce and Industry]

SGI stated that the government should support domestic companies' outbound M&A to acquire overseas technology. Since venture startups are not familiar with overseas M&A, support is needed for identifying acquisition targets and providing legal and accounting advisory services. Venture startups face difficulties in organizational integration and operating costs, so post-management support after M&A is also necessary.

They also emphasized the need to actively consider M&A of U.S. startups. SGI diagnosed, "With the trend of interest rate hikes and financial instability such as the collapse of SVB, the number of startups facing difficulties in fundraising is increasing," adding, "This is a good opportunity to acquire at relatively lower prices compared to the past."

Need for Permanent and Flexible Application of the Corporate Vitality Act

They also argued that proactive business restructuring should be promoted through M&A. The government supports proactive business restructuring for companies in oversupplied industries, companies entering new businesses, and industries in industrial crisis areas among normal companies through the Corporate Vitality Act (Special Act for Enhancing Corporate Vitality) by providing tax benefits, funding, and procedural simplification. The Corporate Vitality Act is a temporary law effective only until August next year. SGI pointed out that to ensure legal stability and policy effectiveness, this law should be made permanent and its scope of application expanded.

Trends in the Amount and Number of Overseas M&A Deals by Domestic Companies. The Korea Chamber of Commerce and Industry's SGI analyzed in this report that the global M&A market transaction amount in the first half of this year decreased by 39.5% compared to the previous year, and the U.S. M&A market transaction amount declined by 41.3% during the same period. The transaction amount of domestic M&A also dropped by 41% compared to the previous year. SGI expressed concern that the effect of enhancing corporate technological capabilities through M&A may be diminished.
[Image source=Korea Chamber of Commerce and Industry]

They further argued that the scope and targets should be changed to a negative regulation method. Expanding applicable companies through legal amendments each time cannot keep up with the speed of changes in the economic environment.

SGI also suggested considering collaboration with private equity funds, which have become major players in the M&A market, through policy finance. Additionally, in situations where M&A between companies in advanced technology fields requires large-scale capital in the trillion-won range, they proposed expanding the credit provision limit for the same borrower at the Export-Import Bank and the Korea Development Bank exclusively for these companies.

Kim Kyunghoon, a research fellow at SGI, said, "Paradoxically, the lowered corporate value due to the M&A market slump could be a good opportunity for investors," adding, "To seize this opportunity, active policy support is necessary, which will not only lead to the recovery of the M&A market but ultimately enhance the vitality of the domestic economy."

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