South Korea, Asia’s fourth-largest economy, is seeking to tap into sector-specific cross-border mergers and acquisitions to keep its export-oriented supply chain unscathed in the face of ongoing trade tension with Japan.
At a seminar hosted by the Korea Trade-Investment Promotion Agency in Seoul on Nov. 29, some 150 audience members -- mainly representatives of small and medium-sized enterprises and private equity firms -- were offered a glimpse of the ample opportunities that exist to strike cross-border deals, specifically in Europe and the United States.
Roundtable nudges Korean firms into cross-border M&As to fight trade spat with Japan
Pranshu Rohatgi, manager of PricewaterhouseCoopers Germany, said corporate carve-outs in European firms in portfolio optimization indicate growing M&A opportunities, even for Korean firms, whose presence in the European inbound M&A market has been relatively small -- less than 1 percent over the past 10 years in terms of transactions.
Moreover, understanding subsector dynamics in specific sectors with complicated value chains, such as chemicals, can help new buyers explore and locate the right company at the right valuation, Rohatgi added.
Cornelius Bettersohl, head of strategy consulting at Umlaut, said cross-border investors from Korea could take advantage of the country’s strong domestic consumer market to reduce the risk of a downturn.
Such opportunities appear to be increasingly under the spotlight as Tokyo’s exclusion of Seoul from its export control whitelist earlier this year has boded ill for Korean manufacturers of semiconductors, display panels, secondary batteries, car parts, biopharmaceutical drugs and chemical products.
Once Japan’s export restrictions are fully in effect, their impact on some sectors might be so great that companies might not be able to continue production unless key materials, components or equipment currently imported from Japanese suppliers could be replaced with homegrown products.
“Korean suppliers need a steady input of effort and resources for a long time to keep pace with Korean manufacturers’ global demand, in order for them to replace Japanese suppliers,” said Jake Yoo, senior manager in charge of corporate financing at the state-led Korea Development Bank.
“A fast and convenient means to (normalize the supply chains of the manufacturers) could be open innovation opportunities like cross-border M&As or overseas investment.”
The concerns about looming trade restrictions are prompting SMEs to turn to investment opportunities overseas, possibly jointly with PEFs, with the support of Korean entities such as an investor promotion agency and financial institutions.
During the seminar, Kotra’s outbound investment and M&A team suggested new overseas deal opportunities that the agency sourced from Europe, ranging from a biopolymer firm to a distressed car parts maker, a robot maker and a cancer therapy developer. Company names were not disclosed.
Since created in 2013, the team has sourced and executed up to seven outbound M&A deals for Korean firms each year, according to Kotra.
By Son Ji-hyoung (firstname.lastname@example.org)