SOUTH KOREA Trends and Developments Contributed by: Je Won Lee, Kyu Seok Park, Dahye Cho and Justin Kim, Lee & Ko
• the incorporation of multi-level special-purpose companies for investment purposes; and • investment by strategic investors into special-pur - pose companies. As joint investments with strategic investors came to the fore, funds that had previously focused on buyout transactions also began to invest as minority financial investors. Strategic investors’ growing familiarity with private equity funds As joint transactions by private equity funds and strategic investors are growing, strategic investors are becoming better accustomed to transacting with private equity funds. Accordingly, there has been a growing number of cases where strategic investors do not demand deposits or monetary penalties from the private equity counterparties and such compromises are reflected in the relevant documentation. Strategic investors are also becoming more aware of, and more understanding of, the needs of private equity inves - tors in requiring W&I insurance in their exits in buyout deals. Decrease in fund formation The sharp rise in interest rates over the past two years has led to a decline in returns expected from fund investments utilising leveraged finance. This has con - tributed to a global slowdown in fund formation and private equity-driven M&A activity, particularly from late 2022 through 2023. In South Korea, the M&A market mirrored this trend, with the proportion of PE- involved transactions falling from 41% to 32% in deal volume and from 47% to 34% in aggregate deal value over the course of 2022. This downward trajectory continued into 2023, during which the total number of M&A transactions in Korea dropped by approximately 23% compared to 2022 (from 1,123 deals to 861 deals). However, there were early signs of recovery towards the end of 2023, with the number of quarterly deals increasing by over 20% between Q1 and Q4. In 2024, the Korean market began to stabilise. Although overall deal count declined modestly to 817 transactions, the proportion of deals involving private
equity sponsors rebounded slightly to 34.5%, indicat - ing renewed investor confidence. Improved visibility around interest rate policy and narrowing valuation gaps have supported this gradual resurgence in activ - ity. Blurring of boundaries As private equity funds invest in start-ups like venture capital, and venture capital invests in large-scale like private equity, there is a blurring of the boundaries between private equity and venture capital in the M&A market in Korea. Overseas private equity In particular, overseas private equity funds making inbound investments in Korea are displaying the fol - lowing trends. • Overseas private equity funds are active in con - ducting not only large-scale investments and M&A, but also medium-scale and minority (pre-IPO) investments. In the past, overseas funds were mainly focused on control deals for the acquisition of management rights and were less attracted to minority investments, but there has been a turning of the tide on this point. • In executing investments in Korean targets, over - seas funds are becoming more active in seeking joint investments with strategic investors rather than making unilateral investments. These joint investments are arranged by overseas funds that believe synergies can be formed between the stra - tegic investor and the target, thereby increasing the value of their investment. • In selecting investment targets or conducting due diligence thereon, overseas funds are putting a spotlight on anti-bribery and corruption and envi - ronmental, social and governance (ESG) issues. As ESG has become a central talking point in Korea, ESG matters have become key determinants in ascertaining the growth potential of investment targets.
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