Some of Korea’s largest companies have seen a dramatic drop in their post-deal share price, according to a report published on Korean stock evaluation website chaebul.com.
Some of Korea’s largest companies have seen a dramatic drop in their post-deal share price, according to a report published on Korean stock evaluation website chaebul.com. Lower valuations and a fundraising freeze in the capital markets has prompted local law firms to warn that Korean M&A is likely to plummet.
Chaebul.com has revealed figures for Korea’s top M&A deals – transactions with a deal value of more than US$71 million – over the last three years, which indicate that of the 16 companies engaged in acquisitions, 11 now face significant losses in share value.
Sang Gon Kim, partner at Korean law firm Lee & Ko, says that the decline is a reaction to the global financial crisis:
“The crisis has resulted in stock market plunges worldwide, which I believe has significant impact on the decline of share value of those acquired companies in Korea,” he comments.
Kim cites the acquiring companies’ excessive financing, which has led to a tightening of capital. Also, for a nation of borrowers of credit from abroad, the global financial crisis is having a “chilling effect” on borrowing.
Kim adds: “The crisis makes potential investors wary of difficulties in M&A funding due to capital liquidity problems.”
On the upside, the Korean private equity sector is seeing a period of increased activity. In the last month, the Korean market has seen local and international PE firms making investments, which include a recently announced $3 billion deal by US-based Oaktree Capital Management.