The Korea Times

PEF market forecast to continue growth in coming years

PEF market forecast to continue growth in coming years

MBK Partners' exit from Doosan Machine Tools second-largest deal in 2021

  • 2022년1월25일
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The Korea Times

PEF market forecast to continue growth in coming years


[The Korea Times= Kim Bo-eun] The local market for mergers and acquisitions (M&A) has grown over the years, and so has private equity firms' (PEF) role in related deals. The market for PEFs is projected to continue to expand in coming years, backed by continuous opportunities in the M&A market, the emergence of new PEF players and the government's market-friendly stance.

Data from consulting firm Bain & Company shows PEFs were involved in 85 percent of the 20 largest M&A deals in the local market last year, up from 65 percent in 2019. The exit value of PEFs also reached the highest yet in 2021, standing at $21.2 billion.

MBK Partners' sale of Doosan Machine Tools to DTR Automotive was the second-highest value deal in the local M&A market last year. This was followed by Kohlberg Kravis Roberts & Co. (KKR)'s investment in SK E&S' redeemable convertible preferred stock. SoftBank Investment Advisors becoming Yanoljia's second-largest shareholder was the fifth-largest deal in the M&A market and Bain Capital Asia's sale of Hugel was the sixth-largest.

The growth in the number of top deals that PEFs were involved in over the years is attributed to greater opportunities in the M&A market.

The market for M&A is growing, with many PEFs reaching the point where they need to unload investments they made years ago. The market has been expanding, with the exception of a contraction in 2020, when entities refrained from pursuing market deals due to uncertainties stemming from COVID-19.

The changing nature of M&A deals has also contributed to market growth. In the late 1990s, entities put up for sale in the market were mostly distressed companies, but now firms up for sale in the market increasingly come from conglomerates carving out non-core businesses. Non-core carve-outs are considered a means for companies on the selling side to focus on central businesses, while for acquiring companies it is a strategy to efficiently secure new capabilities and growth engines. Sales are also emerging in the market as owner chiefs decide not to hand down their businesses to their younger family members.

Secondary deals, which are when PEFs put up for sale stakes of a firm to be acquired by another PEF, have also added diversity to the M&A market.

"PEFs' forms of investment have also diversified from buyouts as demand grows for growth capital. New companies need funding and growing amounts of funds are being provided by PEFs. Taking all of this into consideration, Korea's M&A market is showing high growth rates," Ahn Ji-soo, a partner at Bain & Company, said.

Global investment firms have also recognized the potential of Korea's M&A market, with KKR, CVC Capital Partners and EQT Partners beefing up a team dedicated to this market.

The emergence of more investment firms managing private equity funds and the growth of the size of funds has also contributed to their dominace in major M&A deals. This is based on growing demand for high-risk, high-return investment options from investors, including state pension funds.

"Amid low-interest rates, pension funds continue to increase investments in high-return PEFs to improve profitability," Ahn said.

Financial authorities' market-friendly policies are also creating a favorable environment for PEFs. The government enabled PEFs to exit via IPOs, and continues to introduce favorable policies for the investment firms. Regulations were revised in October to enable PEFs a greater range of investments.

The active M&A market is also benefitting firms providing consulting, accounting and legal advisory services, given demand for their services grow when M&A deals are pursued. They are increasingly hiring M&A experts as revenue from advisory business grows.

Given these trends are projected to last, PEFs are forecast to continue leading major deals in coming years.

"PEFs play a crucial role in creating a virtuous cycle as participants in the capital market and corporate world benefit from the investments that are made," Ahn said.

The Korea Times