Local PEFs with $ 90 billion ammunition are the main force behind Korean mergers and acquisitions

[Graphics by Song Ji-yoon]

Local buyout funds in Korea have raised $ 90 billion, becoming a major force in the Korean M&A market.

Private equity players from large sponsors, including pension fund operators and other large institutional investors, stood at 100.5 trillion won ($ 90.4 billion) at the end of the month. March, according to Financial Supervisory Service data on Monday. The amount has inflated more than 250 times since 2004, when the PEF investment was first introduced in Korea and has more than doubled since 2013.

PEFs have attracted more than 3 trillion won per quarter in recent years due to large pledges from institutional majors like pension funds and insurers.

Of the 20 largest M&A deals in Korea last year, 10 went to PEFs. Three were internal exchanges and excluded from the count.

According to reports from accounting firm Samil PwC and researcher Mergermarket, private equity firms were also behind half or nine of the 18 major M&A deals that took place from January to April this year.

Local players have so far maintained a strong track record.

Out of 879 investments made from 2005 to 2019, only 30 transactions were not profitable. Their failure rate was 3.4%, half of the global average of 6%.

The hold of PEFs over corporate operations also grows as their investment increases. The local activist fund KCCI is recognized for improving governance and management practices in Hanjin KAL, which was notorious for the scandals related to the family of the owners.

Fund operators have shown a knack for turning around struggling companies and making profits in a short five-year period.

Hahn & Company, a local PEF that took over scandal-ridden Namyang Dairy Products last month, has pledged to reorganize the dairy farmer while retaining current Namyang employees. He also said he would not sell his stake to the founder of the company who resigned from the management after a marketing controversy.

Private equity firms are also active supporters of the ESG push. IMM Private Equity transformed Taelim Packaging to add a wastewater treatment business after its takeover. The company also paid Taihan Electric Wire employees outstanding wages after the acquisition.

By Kang Doo-soon, Jin Young-tae, Park Chang-young and Cho Jeehyun

[â“’ Pulse by Maeil Business News Korea & mk.co.kr, All rights reserved]

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