SOUTH KOREA Law and Practice Contributed by: Kyu Seok Park, Dahye Cho and Justin Kim, Lee & Ko
1. Transaction Activity 1.1 Private Equity Transactions and M&A Deals in General Since the onset of the high-interest-rate era in 2022, which has continued into early 2025, private equity funds, which are generally expected to generate returns higher than loan interest, have faced increas - ing hurdles in both fundraising and investment. As capital flows from major financial institutions and institutional investors have slowed, small to mid-sized general partners (GPs) have significantly reduced their investments through project funds. In contrast, larger GPs have focused more on deploying dry powder from their blind funds. With it becoming increasingly burdensome for a sin - gle GP or fund to shoulder the entire funding require - ment, joint investments involving multiple funds, often of varying types, have become more common. This trend has been further accelerated by the October 2021 amendment to the Financial Investment Services and Capital Markets Act (FISCMA), which blurred the regulatory distinction between “general private funds” and “institutional private funds”. It is now common to see not only blind funds and project funds forming consortia, but also general and institutional private funds co-investing in the same transaction. Meanwhile, as institutional private funds have become permitted to engage in lending, quasi-debt invest - ments and minority equity stakes, investment struc - tures have increasingly favoured downside protection over maximising upside. Structures involving redeem - able convertible preferred shares (RCPS), put options for controlling shareholders, convertible bonds and anchor subordinated limited partners (LPs) are now more frequently used to safeguard capital in uncertain markets. 1.2 Market Activity and Impact of Macro- Economic Factors Recently, investment sentiment in Korea has been sig - nificantly dampened due to factors ranging from the US-led tariff conflicts to domestic political uncertainty. Despite such headwinds, several landmark transac - tions have been successfully completed. Notably, the sale of a controlling stake in SK Specialty by SK
(advised by Lee & Ko) and the divestment of Lotte Rental by Lotte both proceeded with large private equity firms as buyers: Hahn & Company and Affinity Equity Partners, respectively. In the mid-market space, it is worth noting that over the past 12 months, Korea has seen more than 15 major M&A deals in the cosmetics industry. Acquirers included a diverse range of players – from strategic investors such as L’Oréal, Shinsegae International, HiteJinro and Goodai Global, to financial investors such as KKR, Morgan Stanley Private Equity and KB PE (in joint investment with IB Capital). The resurgence of overseas travel and the growing global popularity of K-beauty have driven this wave of cosmetics-related M&A activity. With political uncertainties expected to subside domestically, Korea’s M&A market is anticipated to become more active in 2025. 2. Private Equity Developments 2.1 Impact of Legal Developments on Funds and Transactions Since the amended FISCMA took effect on 21 October 2021, private funds are categorised as “general private funds” or “institutional private funds” and both types of private funds are allowed to invest freely. However, the scope of investors for institutional private funds are limited to qualifying institutional investors, includ - ing financial companies and listed companies meeting certain requirements, and the offering procedure for general private funds, which are open to individual and general investors, have become more rigorous. In June 2023, the Venture Investment Promotion Act was amended to allow for the establishment of spe - cial-purpose companies that can borrow funds using the resources of venture capital (defined as “venture investment associations” under the Venture Invest - ment Promotion Act). This amendment is expected to diversify venture capital investment structures and further stimulate venture investments.
583 CHAMBERS.COM
Powered by FlippingBook