As South Korean Chaebols reined in spending in 1H24 amid macro uncertainties and a general election in April, the growing influence of private-equity (PE) firms offers hope for the return of big deals in the second half of the year.

M&A volume in South Korea endured a faltering start to 2024, dipping 8.41% year-on-year (YoY) to USD 19.8bn across 410 deals in the first six months, its lowest level since 1H10. However, there were some green shoots of recovery, as deal count edged up 2.5%, while second-quarter volume soared 66% quarter-on-quarter (QoQ) to hit USD 12.2bn over 210 tie-ups.

Domestic dealmaking reached USD 18.7bn from 374 transactions, marking YoY gains of 1% in volume and 2.22% in count. This contrasts with a decline in the broader Asia-Pacific region, as inbound deal volumes tumbled 63.9% YoY to USD 1.1bn, negatively affecting overall performance.

Buyouts go big

PE activity dominated 1H24 Korean M&A, with seven of the top 10 deals involving PE as either buyer or seller. Take-private offers initiated for portfolio companies also faced delayed exits in the first half, marking a new trend in Korean tender offers.

South Korean PE buyouts exploded 247% from 2H23, reaching USD 5.6bn, driven by large sponsors amid new fundraisings and an improved lending environment. PE exits also rebounded to USD 5.2bn, their highest level since 2H21, accounting for 26.5% of all M&A in the first half.

Despite macroeconomic uncertainties, accelerating exit efforts and expectations of interest-rate cuts have helped sponsors push deals over the line. Hong Kong-based Affinity Equity Partners’ USD 2.3bn acquisition of SK Rent A Car is 2024’s largest deal thus far, trumping Blackstone’s exit of Geo Young, the largest local drug distributor, to MBK Partners for USD 1.4bn. Blackstone also made one real-estate exit in March.

Most sponsors have been progressing exits and new investments simultaneously. Hahn & Co racked up three deals, including one exit and a bolt-on for its aesthetics medical device portfolio, Lutronic.

Outbound is in

Korean outbound deal volume more than doubled to USD 4.5bn across 54 deals in 1H24 from USD 2.2bn over 70 deals in 1H23, the lowest amount since 1H15. The number of transactions remained below previous levels, while around 40% targeted the US market.

Significant outbound deals include SK Bioscience’s [KRX:302440] USD 244.4m swoop for German contract development and manufacturing organization (CDMO) firm IDT Biologika, followed by Shinhan Financial Group [KRX:055550], which acquired a 10% stake in Indian education and loan provider HDFC Credila Financial Services for USD 180m. Hanwha Ocean [KRX:042660], which bet USD 100m on a US shipyard last month, is also eyeing a takeover of Austal in Australia to expand its shipbuilding and defense operations.

Cash-rich Krafton [KRX:259960] invested in a Polish gaming studio, bringing its total to 54 M&A and minority investments since 2014, per Mergermarket data.

Korean strategics remain keen on overseas targets despite macroeconomic concerns and are increasingly focusing on bilateral opportunities over competitive bidding, says a sector advisor.

Chemicals off colour

Healthcare remains the most active sector, making USD 3.6bn of 45 deals, but deal volume declined 68.4% from 2H23. The average ticket size in the sector decreased to USD 81.3m for the first half from USD 373.8m in 2H23.

French PE firm ArchiMed announced a maiden USD 526.4m investment in Korea by attracting beauty device maker Jeisys Medical [KOSDAQ:287410]. Orion [KRX:271560], a legacy food company popular with its ChocoPie brand, ventured into the antibody-drug conjugates (ADC) development business with the acquisition of Leochem Biosciences. Technology saw the highest number of deals with 111 worth USD 2.65bn.

By contrast, the chemicals sector saw the largest fall, sliding 78% YoY to USD 624.8m across 13 deals in 1H24 from USD 2.8bn in 2H23.

Corporate carve-outs

PE deals should maintain momentum into the second half of the year, with several transactions, including KKR-backed waste business Ecrobit, in advanced stages.

The latter half of the year is anticipated to see more active deal flow and larger transactions, aided by cheaper financing costs.

The upcoming US election might add another layer of uncertainty for dealmakers, but ongoing talks for corporate carve-outs are forecast to fuel a string of pacts for the rest of 2024.

SK [KRX:034730], once the largest M&A shopper, has started to realign internal businesses, as highlighted earlier by this news service, with the announcement in July of a merger of its energy units. Meanwhile, internet conglomerate Kakao [KRX:035720] is focusing on improving corporate governance and reportedly working on potential divestitures, including Kakao Games [KOSDAQ:293490], Kakao Entertainment, SM Entertainment [KOSDAQ:041510], and Kakao VX, paving the way for further deal activity.