Discussing SME M&A Amid Aging Management: "Need for Integrated Public-Private Platform"

National Assembly Seminar Explores Measures to Invigorate SME M&As
33% of SME Managers Over 60; 20% Have No Successor
"Building an Ecosystem Through Special Legislation and Integrated Platforms Is Essential"

As one out of every three managers of small and medium-sized enterprises (SMEs) in Korea is now over the age of 60, the SME mergers and acquisitions (M&A) market continues to stagnate due to a combination of complex factors. In response, experts have emphasized the need for alternatives such as establishing an integrated public-private platform and enacting a special law on business succession.

On the morning of the 28th, attendees are taking a commemorative photo at the "Seminar on Preventing Technology Theft in Small and Medium Enterprises and Exploring Measures to Revitalize M&A" held in Conference Room 1 of the National Assembly Members' Office Building. Photo by Jaegwan Lee Office

At the 'Seminar on Preventing Technology Theft from Small and Medium Enterprises and Exploring Measures to Activate M&A,' held on the morning of the 28th at Conference Room 1 of the National Assembly Members’ Office Building, participants discussed ways to invigorate SME M&A. Kim Yongjin, Professor of Business Administration at Sogang University, who delivered the keynote presentation, identified the reasons why SME M&A is necessary and current challenges, and proposed solutions including the need for an integrated public-private SME M&A platform and a professional brokerage ecosystem. The seminar was hosted by Assemblyman Lee Jaegwan’s office and the Committee for the Protection of Small Business Owners’ Rights and Interests of the Democratic Party of Korea, and organized by the Korea Federation of SMEs (KBIZ) and the Gyeongcheong Foundation.

With the aging of SME managers and the growing issue of a lack of successors, the necessity of SME M&A has come to the forefront. According to the Ministry of SMEs and Startups and other sources, as of 2023, the percentage of SME manufacturing CEOs aged 60 or older reached 33.5%, more than 2.3 times higher than the 14.1% recorded in 2012. Around 210,000 SMEs are unable to find a successor, and among them, 30.7% are considering M&A. The seminar also highlighted the need to improve the virtuous cycle of the venture ecosystem. Until now, exit strategies for investors in the venture ecosystem have heavily relied on initial public offerings (IPOs), but there is a need to diversify these through M&A as well. The demand for succession via M&A reached 210,000 cases as of 2022.

The reasons cited for the stagnation of the SME M&A market included four major inhibiting factors: ▲ culture (negative perceptions and biases), ▲ legal and institutional frameworks (a focus on family succession and valuation methods tailored to listed companies), ▲ technology (uncertainty in valuation, concerns over technology theft, and information asymmetry), and ▲ the capital market (an exit structure focused on IPOs and a lack of professional brokerage institutions). These factors are said to interact and perpetuate a negative cycle. The negative perception regarding founders relinquishing management rights has led to more hidden sale opportunities, which in turn exacerbates information asymmetry, increases transaction costs, and shrinks the market. The need for simultaneous and comprehensive reform was highlighted.

In particular, the enactment of a 'Special Act on Business Succession' was stressed as an alternative from a legal and institutional perspective. Transaction costs are rising in the M&A process due to uncertainties in due diligence, disclosure, and taxation, and the current business inheritance tax deduction system is centered on family succession, failing to support third-party M&A. The business inheritance tax deduction allows heirs to reduce inheritance tax burdens by up to 60 billion won when inheriting SMEs or mid-sized companies that the deceased managed for at least 10 years.

Professor Kim stated, "Through a Special Act on Business Succession, we need to define and make special provisions for succession via M&A and include third-party succession as well," adding, "It is also necessary to expand special tax provisions for transfers, acquisitions, inheritance, and gifts." The Ministry of SMEs and Startups also proposed this as a policy direction for promoting business succession via SME M&A in December last year, and currently, bills by Assembly members Kim Donga and Kim Won are pending in the National Assembly.

An integrated public-private platform was also proposed as an alternative to break this negative cycle. Such a platform should provide one-stop services including opportunity sourcing, matching, deal support, and post-merger integration (PMI), and designate professional brokerage institutions to enhance expertise. The need for a private sector-led ecosystem was also stressed through the development of financial products such as search funds (acquisition-oriented entrepreneurship), succession trusts (conditional inheritance systems), and secondary transactions (existing shares), as well as improvements to procedures for expedited mergers. Professor Kim noted, "The success of overcoming structural bottlenecks will depend on co-evolutionary collaboration among the public, private, and financial sectors," adding, "To overcome the limits of single-entity approaches, establishing a multi-party cooperative system is essential."

In the subsequent discussion, Eom Pyeongsik, head of Technology Transaction Protection at the Korea Technology Finance Corporation (KIBO), agreed with Professor Kim's presentation and said, "The public sector should focus less on so-called 'big deals' and play a role in smaller deals below 30 billion won or even smaller M&A transactions. Rather than direct brokerage activities, it is important to provide support from behind the scenes to address information imbalances and prevent technology theft so that private actors can conduct M&A safely." He further suggested that support systems should be designed to include ▲ tax support and procedural improvements for succession by children, and ▲ financial support for acquirers, procedural simplification, and special provisions for third-party acquisitions. KIBO is currently running a pilot program to support business succession M&A.

Assemblyman Lee Jaegwan, who chaired the discussion, concluded, "I will work to ensure that the various valuable opinions proposed in this seminar do not remain as mere discussions, but are reflected in policies that address real-world needs."

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