M&A 'Cold Spell' Passes... Market Shrinks by 30%, 'Mega Deals Missing'

Transaction Volume Down Over 30% Year-on-Year
'Mega Deals' Exceeding 1 Trillion Won Missing Since Second Half

This year, South Korea's mergers and acquisitions (M&A) market is going through a 'deep freeze.' Compared to last year, the transaction volume has decreased by more than 30%, and since the second half of the year, there have been no 'mega deals' exceeding 1 trillion won. The liquidity freeze that hit the initial public offering (IPO) and startup markets due to interest rate uncertainties and global economic headwinds has similarly affected the M&A market.

Market Shrinks by 30%... Healthcare Shows Growth

According to league table data from the U.S. economic media Bloomberg as of the 29th, South Korea's M&A market recorded a total of 1,891 deals worth $64.8 billion (approximately 84 trillion won) through the third quarter of this year. During the same period last year, there were 2,375 deals totaling $102.4 billion (about 113 trillion won). The number of deals decreased by 20%, and the transaction value dropped by 37%.

Based on completed deals, the number of trillion-won 'mega deals' also declined from 14 in 2022 to 11 this year. Since the second half of the year, there have been no mega deals at all. Even including ongoing fourth-quarter transactions, it seems unlikely that the annual transaction volume will exceed 100 trillion won.

The largest M&A completed this year was Lotte Chemical's acquisition of Iljin Materials (now Lotte Energy Materials), with an acquisition amount of 2.5377 trillion won.

The most notable sector was the bio and healthcare field. Unlike other frozen sectors, M&A activity is most active here. As the fourth-quarter tally is not yet complete, deals worth $5 billion (approximately 6.47 trillion won), which is 1.5 times the transaction volume of 2022, have already been concluded.

The private equity fund (PEF) that heated up this year's M&A market was MBK Partners. They completed two large-scale M&As: acquiring oral scanner company Medit (2.425 trillion won) and manufacturer Nexflex (530 billion won), and recently entered the bidding for management rights of Korea & Company.

Among large corporations, Kakao was noted as the company with the most M&A activity, investing 1.41 trillion won in a total of six deals, including SM Entertainment.

Expectations for Interest Rate Cuts Amid 'Limited Impact' Forecasts

[Image source=Yonhap News]

Experts cite 'high interest rates' as the main reason for the market contraction. Jeong Kyung-soo, head of the M&A Center at Samil PwC, said, "Due to interest rate hikes that began in 2022, the market as a whole is facing difficulties in raising funds," adding, "Global economic downturns caused by Russia's invasion of Ukraine and the Israel-Hamas conflict have also negatively impacted the South Korean market." South Korea's base interest rate, which was 0.5% annually in August 2021, has been raised ten times and currently stands at 3.5%. Amid domestic and international uncertainties, funding has become difficult, leading large corporations and PEFs to close their wallets.

Bank of America (BOA) in the U.S. expects the highest number of central bank interest rate cuts since 2009, with 152 cuts anticipated worldwide next year. While cautiously forecasting that the market will improve next year due to the interest rate cut trend, there is also a view that the scale and impact of interest rate cuts in South Korea will be limited.

This year, the Bank of Korea kept the base interest rate unchanged for six consecutive times, resulting in the largest-ever interest rate gap between South Korea and the U.S. Additionally, with the contraction of the construction market, the real estate project financing (PF) crisis has become a reality, which may cause difficulties for related small and medium-sized securities firms, savings banks, and capital companies. However, as the number of 'marginal companies' unable to cover even interest expenses increases, there is a forecast that restructuring-type M&As will rise.

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