South Korea looks to ease M&A rules for PE

The plans, revealed by the country's Ministry of Strategy and Finance this week, are part of a three-year economic innovation strategy focusing on reforming regulations and economic structures.

According to a release, in order to facilitate private equity funds and strategic investors, restrictions will be eased at the fund creation and investment, management and sale stages of the M&A cycle.

This will include allowing GPs to acquire a company's business division rather than restricting them to buying a stake in the entire company, thus making it easier for a private equity firm to cherry-pick the most attractive businesses.

PE-backed companies will also be able to list on the local stock exchange, unlike before when a strict interpretation of the rules on investor protection blocked portfolio companies from going public.

In addition, the M&A Fund within the Growth Ladder Fund - a government vehicle set up to support small and medium-sized enterprise (SMEs) and venture companies - will be expanded to KRW1 trillion ($941 million) over three years. Tax support for M&As carried out through stock exchanges will also increase while taxes for mergers of listed corporations will be reduced.

The government - which expects the first set of changes to come into force by the second half of this year following parliamentary approval - hopes the rule changes will help facilitate the sale of an estimated KRW10 trillion in assets expected to be shed from cash-strapped conglomerates.

In the last year or so there has been increased deal flow emanating from Korean conglomerates that are under political and financial pressure to refocus on their core operations. MBK bought water purifier business Woongjin Coway from the distressed Woongjin Group for $1.1 billion while Affinity Equity Partners bought control of digital music platform Loen Entertainment from SK Telecom for $239 million.

More may be forthcoming with Hahn & Co. and IMM Private Equity both eyeing $1 billion-plus deals for Korean shipping assets from Hanjin Shipping and Hyundai Merchant Marine, respectively.

Meanwhile, last week's $1.93 billion sale of Tyco's South Korean home security business to The Carlyle Group was the latest in a series of cases where multinationals have sought to divest Korean assets.

Last year, ING, which is required to exit its Asian business as a condition of a post-global financial crisis bailout, sold its Korean life insurance unit to domestic GP MBK Partners for $1.67 billion.

MBK was responsible for an even larger buyout in 2007 when it teamed up with Macquarie and selected to co-investors to acquire cable TV provider C&M for $2.4 billion across two tranches.

Korean buyouts reached $4.99 billion in 2013 across 27 disclosed transactions, more than double the previous year and the highest annual total on record. This pushed private equity investment in the country to a high of $9.1 billion. Korea accounted for 19% of buyout activity in Asia by transaction value in 2013.

 

 

 

 

 

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• Topics
• Buyouts
• Regulation
• North Asia
• M&A
• South Korea
• regulation