More South Korean conglomerates will likely turn to the mergers and acquisitions (M&A) market in the coming year to sell non-core assets as part of restructuring efforts, as they react to a persistent low-growth environment and the impact of the Covid-19 pandemic.

“Non-core asset sales by conglomerates are expected to continue through next year, while outbound deals will increase as they pursue new technologies along with expansion of their core businesses,” Kim Yi-dong, a partner who leads the deal advisory team at Samjong KPMG, told the bell’s Korea Capital Markets Outlook Forum in Seoul on December 15.

The South Korean M&A market has been heating up this year, with the pandemic accelerating restructuring efforts by the country’s large conglomerates. LG Group offloaded its water treatment business, and CJ Group completed the sales of its remaining stake in coffee chain A Twosome Place and land at Gayang-dong in the north western part of Seoul.

Samsung sold its liquid crystal display production line in Suzhou, China earlier this year, and the auction process for bakery chain Tous Les Jours is still underway.

“This trend of restructuring to streamline operations will likely continue,” said Kim, adding that this would probably result in “more active partnerships and collaborations” among conglomerates than before. He also expected more South Korean conglomerates to look to strengthen relationships with their suppliers.

“The pandemic has disrupted global supply chains and this made large companies realize the importance of high-quality local suppliers,” said Kim.

Samsung Electronics recently made equity investments in its key local suppliers, including the 20.7 billion won ($18.9 million) purchase of a 4.9% stake in KC Tech last month. Samsung SDI also announced a partnership with its supplier EcoPro BM to build a plant that will produce battery materials.

Kim added that venture capital exit activity will likely increase next year with more unicorns – startups valued at more than $1 billion – expected to be put on the market. He said there was only one exit from South Korean unicorns this year, with the $4 billion sale of Woowa Brothers to Delivery Hero, which means pend-up investor demand for exits.

Environmental, social and governance (ESG) investing will also be one of the key drivers of the South Korean M&A market next year.

“The National Pension Service of South Korea announced earlier this year that it would increase its allocation to ESG strategies to 50% in the next two years,” said Kim. “This means an increasing need for private equity firms working with the pension fund to integrate ESG into their investment process.” (Reporting by Hye-ran Kim)