M&A activity may slow in H2 as buyers lose appetite

[THE INVESTOR] Despite the string of merger and acquisition deals in the pipeline in South Korea, the companies are expected to struggle to attract interest from potential buyers, industry sources said on July 19.

As creditor banks set to sell companies which are undergoing creditor-led restructuring and private equity firms seek to exit investments by putting acquired companies such as Coway up for sale, the country’s M&A market will see a strong number of deals in the second half of 2016.

However, buyers are hesitating to pour their money into big-ticket M&As due to hefty prices and dismal industry outlook. 

“Buy-side M&A transactions are likely to be created as the number of deals in the second half of 2016 will be as high as the first half. But there are slim chances of materializing because of a wide gap in expected prices between sellers and buyers,” an official at an investment bank said.

Two of the major candidates for M&A deals -- Coway and ING Life -- are expected to be offered by a local PEF MBK Partners.

Coway, the country’s leading water purifier maker, faced a temporary lull in transaction after a key potential buyer CJ Group(chairman Lee Jay-hyun) dropped out of the bidding held last year. The deal is estimated at up to 3 trillion won (US$2.64 billion).

The deal is expected to be resumed but experts are skeptical on the transaction as the company was hit by a scandal after nickel compounds were found in its water purifiers.

The hefty price tag is another obstacle despite some improvements in earnings in recent years after MBK Partners bought a 30.9 percent stake in Coway for 1.2 trillion won in 2013.

Chinese bidders, including China Taiping Insurance and JD Capital, are vying for ING Life Insurance, the nation’s fifth-largest life insurer in a sale that could fetch about 3 trillion won.

MBK Partners acquired the entire stake in ING Life for 1.8 trillion won in 2013.

Given that the Korean market has entered a low growth phase and life insurers are required to bolster their capital to prepare for the International Financial Reporting Standards, the price is too high, market experts said.

Debt-ridden Hyundai Heavy Industries plans to sell its 85 percent stake in Hi Investment & Securities, which has an equity capital of 710 billion won, within this year.

But local brokerage houses are not showing much interest in the deal so far which is valued at around 500 billion won by the market whereas HHI expects 1 trillion won.

“Selling the securities firm for 500 billion won will cause an investment loss for Hyundai Industry. It will be a huge concern for the company to come up with a reasonable price,” a source said.

By Park Han-na (hnpark@heraldcorp.com)