Tyco's ADT deal puts spotlight on resurgent S.Korea M&A market

HONG KONG, March 5 Tue Mar 4, 2014 4:00pm EST

HONG KONG, March 5 (Reuters) - The volume of M&A activity in South Korea has posted its strongest start to the year since 2008, rising 18 percent to date and dominated by a spate of private equity dealmaking.

The $1.93 billion sale on Monday of Tyco's South Korean home security business to Carlyle Group LP was the latest sign that the pace of private equity buyouts that began picking up in 2012 is moving steadily ahead.

South Korea's M&A market historically has offered large targets with narrow windows of opportunity as well as past cases of anti-foreign takeover sentiment from regulators.

But activity is heating up again, helped by economic and political stability, a steady domestic stock market and a stream of buyout targets being churned out by foreign and local conglomerates.

"There's a longer term view emerging that in Korea, you can do more traditional private equity buyouts," said Bob Partridge, Ernst & Young's Hong Kong-based head of private equity transactions for Asia-Pacific.

Private equity-backed M&A deals in South Korea rose 22 percent to a record $9.1 billion in 2013, according to data from the Asian Venture Capital Journal, bucking an overall decline in private equity volumes in Asia.

Many of those deals were led by a new crop of small to medium-sized local private equity firms like Hahn & Co, as well as more established buyout shops such as MBK Partners.

Carlyle's recent deal underscores the view that foreign buyout firms are feeling more comfortable with South Korea after years of trepidation. The country fell out of favour in the mid-2000s following run-ins with unions, courts and regulators, highlighted by Lone Star Funds' series of headline-grabbing problems selling a stake in Korea Exchange Bank. []

In addition to private equity firms, corporate buyers are circling South Korea. Among the deals attracting them are MBK's sale of bottler Techpack Solution Co Ltd, which attracted foreign strategic bidders, sources told Reuters, in a deal that could fetch up to 600 billion won ($560.67 million).

Other targets include Hyundai Group's finance units, which were put up for sale in December and Korea's largest bulk shipper, Pan Ocean, previously STX Pan Ocean, which is expected to go on sale this year.

People familiar with the matter said the final round of the ADT auction involved a hectic scramble of foreign private equity offers, something Seoul bankers have not seen for quite some time. They included bids from Affinity Equity Partners and KKR & Co, in addition to Carlyle.

The ADT buyout follows KKR and Affinity's mammoth $5.8 billion sale of Oriental Brewery to Anheuser Busch InBev SA in January. That deal, Asia's biggest private equity M&A exit, represents more than half of South Korea's $11 billion volume for the first two months, Thomson Reuters data shows.

KKR and Affinity bought Oriental Brewery for $1.8 billion from AB InBev in 2009, grew its market share to more than 60 percent from 41 percent when it was acquired, before selling it back to AB InBev five years later for more than three times what they had paid.

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