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2023 Aug/24
M&A in Korea: Characteristics and Implications from the Perspective of Acquirers Issue Papers 23-16 PDF
Recently, the Korean M&A market has captured the attention of market participants due to regulatory authorities unveiling plans to enhance support for corporate M&A. As one of the classic investment and growth strategies of businesses, M&A effectively allocates investment opportunities to assist firms in securing growth prospects and plays a critical role in improving economic dynamics and industry structure. Based on the detailed data on domestic M&A deals, this report carried out a comprehensive and quantitative analysis on the current state and characteristics of Korea's M&A market. Additionally, it analyzed the key financial indicators that could influence deal participation from the perspective of acquirers.

According to the analyses, the Korean M&A market saw the deal size growing steadily between 2010 and 2022, and a significant part of the market has been driven by deals between buyers and sellers, and of non-listed businesses. On another note, the market has also witnessed increased participation by financial investors, including private equity. It seems that the higher valuation multiples in Korean M&A deals were influenced by several factors, including increased investment sources, larger acquisition financing due to low interest rates, and a greater appetite for growth sectors among these investors. Also found was that investors with a strategic focus on few specific sectors increasingly tend to acquire firms in other sectors, which implies an increase in growth-type acquisitions for investment opportunities. Finally, an empirical analysis of the financial leading indicators related to acquisitions revealed a direct correlation between acquisition activity and factors such as corporate size, which signifies access to acquisition financing and funding sources, as well as the proportion of debt, cash reserves, and the share of intangible assets representing innovation and value-adding capabilities.

The results of this report suggest the necessity to offer stronger access to acquisition financing to small-sized, innovative firms that have financial constraints but want to engage in acquisition deals. Towards that end, it is possible to consider financing via growth capital or matching investment. Also, further policy efforts are needed to facilitate IP financing and to enhance access to acquisition financing for the firms that have strength in intangible assets. Although highly likely to participate in acquisition deals, these firms can hardly access to external financing sources.