Korean M&As halve vs last year on higher cost from strong USD and rising interest rates

2022.05.12 12:00:36 | 2022.05.12 12:01:00

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South Korea’s M&A market after record two years has turned subdued as it has become difficult to get fair value for companies amid sluggish stock market, rising interest rates and strong U.S. dollar environment.

SK on Co., electric vehicle battery maker seeking pre-initial public offering (IPO) funding for around 4 trillion won ($3 billion) is holding the main tender this month. Preliminary bidders included Carlyle, KKR, BlackRock and Singapore’s sovereign wealth fund GIC.

But valuation agreement has become difficult since external market environment has significantly changed since preliminary bids in January.

SK on keeps to its worth at 40 trillion won without sharing much of its financial files, while investors have become doubtful of battery makers’ performance due to spike in raw materials.

SK on argues it can turn to profit from the fourth quarter this year, which however cannot be guaranteed.

The company recorded operating loss of 273.4 billion in the first quarter and is expected to remain in the red in the second quarter.

The battery maker needs as much funding as possible as it has large expansion plans in the U.S. and Hungary.

The buyout deal over Hanon Systems, the world’s second-largest supplier of automotive thermal and energy management solutions, has been stalled for nearly a year. Hahn & Co., private equity firm selling Hanon Systems, has received multiple bids from global investors, but has not been able to narrow the price gap after Hanon Systems performed worse than expected due to production trouble at finished car makers.

Only 59 M&A deals have been sealed as of April, just half the level of the same period last year, according to data compiled by Maeil Business Newspaper.

“Many deals are falling through at the last minute due to difference over pricing,” said an investment banker.

Overseas investment by Korean companies also has hit snag due to sharp weakening of the Korean won versus U.S. dollar, making capital investment more costly as settlements are done in greenback.

By Cho Yoon-hee and Cho Jeehyun

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]