Strategic investors dominated the South Korean mergers and acquisitions (M&A) market in the first half of the year, with tough trading conditions halving the share of private equity-backed transactions compared to the same period last year.

There were 77 PE-backed deals worth 11.68 trillion won ($9.7 billion) in the six months to June 30, according to tables compiled by thebell. Total M&A activity in the first half, including spinoffs and mergers, amounted to 45.86 trillion won from 239 transations.

PE-backed deals accounted for 25.5% and 32.2% of the total value and volume respectively, down 25.5 and 7.3  percentage points respectively from a year ago. They accounted for 50.5% and 51% of volume in the same periods in 2018 and 2019.

Many financial investors have decided to sit on an enormous amount of dry powder as they face difficulties finding decent investment opportunities. There were several cases in the first half of this year in which mid-sized PE firms reviewed their potential involvement in relatively small deals, and at the same time many financial investors shelved plans to exit companies in which they had invested because the Covid-19 pandemic had resulted in a poor financial performance. 

The largest deal in the first half was Macquarie PE’s acquisition of Daesung Industrial Gases from MBK Partners for 2.5 trillion won in February. In notable non-PE deals, Netmarble acquired a 25.08% stake in Woongjin Coway from Woongjin Group for 1.74 trillion won and there was a 1.5 trillion won merger of SK Broadband and T-Broad.

Macquarie PE also bought a minority stake in LG CNS, IMM PE sold Tailim Packaging and Tailim Paper to Sae-a Trading for 730 billion won and KKR sold KCF Technologies to SK Group for 1.2 trillion won.

While financial investors remained cautious, strategic investors sought new opportunities at home and abroad, with South Korean conglomerate SK particularly active. SK Siltron, a semiconductor material producer under SK Group, completed the acquisition of DuPont’s wafer business for 536.8 billion won. SKC, a chemical unit of SK, separated its chemical business and set up a joint venture with Petrochemical Industries Company K.S.C. of Kuwait in March. SK Global Chemical, an affiliate of energy giant SK Innovation, bought French chemical firm Arkema S.A.’s functional polyolefins business for 439.2 billion won. 

Among financial firms, Kookmin Bank acquired Prasac Microfinance Institution, the largest microfinance deposit-taking institution in Cambodia, for 700 billion won, to expand its Asian retail networks.

Going forward, financial investors that took a wait-and-see stance in the first half may resume their investing activities in the second half. Anchor Equity Partners is expected to complete the sale of ESG and ESG Cheongwon to KKR for 900 billion won and IS Dongseo and E&F PE will close the acquisition of Koentec and Saehan Environment for 501.9 billion won.

Alchemist Capital Partners Korea and Credian Partners are scheduled to close a deal to acquire MagnaChip’s foundry business for 400 billion won, and Hahn & Company is likely to take over SK Chemicals’ biofuel business for 382.5 billion won. IMM PE’s acquisition of Kolmar Korea’s pharmaceutical business unit and Kolmar Korea Holdings’ subsidiary Kolmar Pharma is also expected to be completed in the second half of the year. (Reporting by Ar-rum Rho)