South Korea – Mixed signals

The year 2024 presented a paradox for the South Korean M&A market. Following a challenging first semester, the market recovered in the second half of the year. The value of these transactions (excluding the inbound market) increased, driven by several mega-deals (seven with a deal value exceeding $1 billion). Deals included IMM Private Equity and IMM Investment’s acquisition of Ecorbit for $1.9 billion and KKR’s continued minority investment in SK E&S via a $1.8 billion investment in E&S City Gas. The largest transaction was the merger between SK Innovation and SK E&S, both part of South Korea's SK Group, forming the largest privately owned integrated energy company in the Asia-Pacific region, with a combined asset value of $73 billion.

In a relatively slow inbound market, with 169 transactions in 2024 compared to 208 in 2023, the US accounted for nearly a quarter of inbound deals by value and over 15% by volume. Singapore followed with 20% of deal value, and France and Hong Kong each contributed over 10%. Hong Kong and Japan each accounted for around 10% of inbound deal volume.  

The growth in outbound transactions was driven by increased deal flow (by value) to the US and Japan, with the latter seeing a significant rise from over $100 million in 2023 to over $1 billion in 2024. Singapore, Hong Kong, Vietnam, and Australia also experienced substantial increases in the amount of Korean Won deployed in M&A, while Mainland China and India saw declines.   

Conglomerates, private equity, activist funds, and the state

The M&A market in South Korea is primarily divided among historical conglomerates (Chaebols), private equity funds, and the increasingly influential activist funds.

The historical conglomerates, predominantly family-owned, have adopted a cautious, wait-and-see approach towards large cross-borders acquisitions, focusing instead on exploring carve-out operations. This reflects their intent to streamline operations and enhance core competencies.

South Korea remains an attractive destination for private equity players seeking access to cutting-edge technologies, new markets, and exceptional talent. These players are capitalising on the substantial dry powder accumulated during the Covid-19 years. This attractiveness is underscored by numerous transactions and significant recruitments within private equity funds, as well as the establishment of an office in Seoul by the major investment firm Apollo Global Management in November 2024. 

Activist funds are increasingly challenging the traditional conglomerate model in South Korea. A decade after the Elliott fund's notable opposition to Samsung's reorganisation, there has been a proliferation of cases where activist funds are asserting their influence in Korean companies. For instance, Dalton Investments' acquisition of a stake in Kolmar Holdings at the end of 2024 exemplifies how activist funds are challenging governance structures, development strategies, and even business models.

These three categories of players are expected to continue driving the M&A market in 2025. However, the government will likely play a pivotal role. Facing a combination of cyclical and structural challenges, including political crisis, slowing economic growth, and an ageing population, the South Korean state has always been a strong supporter of local companies and the government is expected to introduce new legal and financial measures to bolster the economy, potentially boosting the M&A market.

Sectors

In 2024, the energy & utilities sector accounted for over 15% of M&A transaction values involving South Korean targets, with the largest deals of the year being SK E&S and Ecorbit. Technology transactions, particularly in semiconductors, continue to be the most prevalent, representing nearly one in four deals. Healthcare and telecommunications sectors experienced increased deal activity while other sectors remained largely flat.

Regardless of the sector, there is a strong appetite among South Korean companies to access innovative technologies and capabilities to maintain their competitive edge.

Foreign investment

In addition to specific employment laws and foreign exchange regulations, foreign investments in certain controlled sectors, such as technology and defence, are subject to government approval. However, the Korean Financial Services Commission has implemented significant measures in recent years to facilitate the entry of international investors, especially in listed companies. The country aims to leverage its cultural appeal to further enhance its economic influence.

Outlook for 2025

South Korea experienced a politically turbulent end to the year, with repercussions expected to continue into 2025. This political instability will inevitably impact the confidence of economic players and, consequently, the M&A market. Additionally, as China is the country's largest trading partner, the South Korean economy will likely face challenges from increased tariffs with the return of Donald Trump to power.

Nevertheless, it is reasonable to assume that M&A activity will remain robust in 2025, driven by the technology sector (including semiconductors, EVs, batteries, AI, and robotics). Restructuring operations in traditional industries such as shipbuilding, construction, petrochemical, and utilities are also expected to contribute to M&A activity.