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M&A activity plummets 40% in H1

Policy fund urged to support Korean businesses' attempts to acquire tech firms overseas

By Park Han-na

Published : July 10, 2023 - 17:39

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The total transaction volume of cross-border mergersand acquisitions involving Korean companies decreased by more than 40 percent in the first half of this year compared to the previous year, according to a major business lobby group, which called for the government support for deals with overseas tech companies.

According to a report released by the Sustainable Growth Initiative, a think tank under the Korea Chamber of Commerce and Industry on Monday, the volume of transactions in domestic and foreign M&A markets has shrunk significantly.

In the first half of this year, the global M&A market transaction amount decreased by 39.5 percent from the previous year while Korean M&A deals, including inbound and outbound transactions, also decreased by 41 percent in the period.

The think tank said the shrinking market raises concerns that the effect of enhancing corporate technology through M&A may be diminishing, as an increasing number of companies are pursuing market entry into tech sectors through such deals.

By sector, M&A deals targeting technology companies such as semiconductor and computer firms accounted for the highest share at 25.2 percent of the total, and inbound M&As also centered on high-tech fields such as secondary batteries, energy, and biotechnology. The US M&A transaction volume also decreased by 41.3 percent on-year

The report argued that M&A deals can be harnessed to achieve strategic goals, such as entering overseas markets, acquiring advanced technologies, and increasing corporate value.

“Ironically, the lowered corporate value due to the M&A market downturn can be a good opportunity for investors,” said SGI Research Fellow Kim Kyung-hoon.

“In order to take advantage of these opportunities, more active policy support is needed, which will lead not only to the recovery of the M&A market but ultimately to the improvement of the domestic economy,” he said.

The SGI suggested policy support measures that can activate M&A and strengthen the growth potential of domestic companies.

In particular, since venture startups are not familiar with overseas M&A, the SGI said that they needed support for discovering foreign acquired companies and providing legal and accounting advice during M&A promotion.

Even after a merger or acquisition, venture start-ups could need follow-up support, as the benefits may be diminished due to organizational integration, operating costs and other difficulties.

In addition, SGI emphasized the need to consider outbound M&A for US tech start-ups that have recently been experiencing funding difficulties as interest rates rise and financial instability grows due to the Silicon Valley Bank failure.

“This can be considered a good opportunity for domestic companies to acquire promising US startup technology companies at a relatively low price compared to the past,” the report said.

SGI also called for the expansion of provision of tax deductions, funding and streamlined regulatory procedures for companies going through M&As.

Although the number of companies enjoying benefits through the Business Vitality Act has steadily increased over the past few years, the report suggested that the desired results had been achieved. But it said it should be expanded as the law has a sunset clause that means it is only effective until August next year.

In addition, as recent M&As between high-tech companies require large-scale capital of more than trillion won, SGI insists that the scale of support funds for individual companies in policy finance should be expanded, but only for high-tech companies.