"Few Attractive Assets Available"... PEFs Hold Their Breath

Trillion-Won Deals Rare as Major PEs Remain Quiet
Number of Assets for Sale Shrinks; Even Industry Leader MBK Contracts
Doubts About Korean Industry Competitiveness...
"Few Sectors Left Worth Investing In"

Private equity fund (PEF) managers are struggling to find companies worth investing in. Analysts say that sellers are reluctant to put assets on the market, calculating that they could fetch higher prices depending on the new government's industrial development policies and regulatory easing. More fundamentally, doubts about the future competitiveness of Korean industries are also cited as a factor.

According to the investment banking (IB) industry on the 17th, PEF-led M&A activity has slowed compared to previous years. Overall deal volume has dropped significantly, and buying capacity has also weakened. According to the Financial Supervisory Service, last year’s investment execution by institution-only private equity funds totaled 24.1 trillion won, down 25.8% from the previous year. Dry powder?unspent committed capital, which indicates additional investment capacity?stood at 36.1 trillion won, a 3.7% decrease year-on-year. Concerns over the global economic slowdown and martial law incidents have also contributed to the contraction of the domestic M&A market.

The head of a mid-to-large-sized PEF management firm explained, “One factor is that sellers are holding back assets, believing they could get a better price after seeing the new government’s policy direction.”

Most of the recent deals that have gone through were either at the early stage of the fund’s formation or just before the investment deadline. This reflects the need to spend dry powder within a set timeframe. For example, Anchor Equity Partners, which is bidding for Aekyung Industrial, is expected to use its fourth blind fund established in 2021. As the investment period approaches its end, the firm is taking a more aggressive approach. BNW Investment is also seeking to acquire KTEC using its third fund, for which fundraising was completed last year.

In particular, some analysts say that the M&A market contraction has accelerated as MBK Partners, the industry’s leading player, has been shaken by the Homeplus situation. For trillion-won deals, participation by large PEFs like MBK is essential for market excitement, but given the critical public sentiment toward MBK and private equity funds in general, such an atmosphere is difficult to create.

Fundamental doubts about the growth potential of domestic industries are also holding the market back. The head of a mid-sized PEF said, “Above all, the most important problem is that there are fewer attractive businesses. The chemical sector has suffered greatly because of China, IT is also challenging, and even K-food and K-culture are not particularly appealing because the technological barriers are not high.”