"Betting on the Exchange Rate?" Foreign Giants Flock to Korea with Cash, Eyeing Top Firms [PE Now]

Benefiting from High Exchange Rates and Pressure to Deploy Region-Specific Funds,

Foreign PEFs Actively Acquire Korean Companies

Over 71 Trillion Won in Capital Ready for Immediate Deployment in the First Half of the Year

Foreign private equity fund (PEF) managers are showing strong performance in the large-scale mergers and acquisitions (M&A) market for deals worth over 500 billion won. In the short term, economic factors such as foreign exchange gains are prominent, but there is also a view that, over the long term, the number of companies in Korea worth investing in from a qualitative perspective has increased.

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According to market research firm PitchBook on July 13, the Korean M&A market in the first half of this year was characterized by: 1) the sale and spin-off of conglomerate subsidiaries, 2) delisting after acquiring management rights, and 3) industry restructuring and integration.

A representative example of conglomerate subsidiary sales is Lotte Group’s sale of Lotte Rental. According to the investment banking (IB) industry, Texas Pacific Group (TPG), a U.S.-based PEF manager, is conducting a solo due diligence for the acquisition of a controlling stake in Lotte Rental. Before TPG, Affinity Equity Partners, a Hong Kong-based manager that owns SK Rent-a-Car, attempted to acquire Lotte Rental for nearly 1.5 trillion won, but the Fair Trade Commission did not approve the merger, so the transaction did not take place.

TA Associates, a U.S.-based manager that owns the milk tea franchise Gongcha, was selected as the preferred bidder for Daewoong Group affiliate CGBio, beating out leading Korean firm IMM PE. Earlier, Carlyle acquired domestic home appliance specialist Chungho Nice and its affiliates Micro Filter and MCM for just over 1 trillion won.

The most notable case of delisting after an acquisition of management rights is EQT’s acquisition of Douzone Bizon. After purchasing a controlling stake, EQT invested an additional 2.2 trillion won via a public tender offer to secure the remaining shares, resulting in the company’s delisting.

A representative example of industry restructuring and integration is KKR’s joint investment in SK’s renewable energy platform. This platform is an integrated corporation combining renewable energy businesses and assets from SK Group affiliates, including SK Innovation, SK Ecoplant, and SK Eturnex.

Even in large-scale deals since last year, foreign players have dominated. EQT Partners acquired Douzone Bizon and Remember, Brook Capital acquired Koentech, and Blackstone acquired Juno Hair.

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The active participation of foreign players in large deals is attributed to the high exchange rate environment. With the won-dollar exchange rate fluctuating in the 1,500-won range, it has become possible to purchase more won-denominated assets with the same amount of dollars compared to the past. By acquiring at a discounted price, if the exchange rate falls over the long term, they can realize profit through foreign exchange gains.

There is also pressure to deploy dry powder (uninvested committed capital). TPG is expected to use its Asia Fund VIII, established in May 2024 for the Asia-Pacific region buyouts, for the Lotte Rental acquisition. At that time, TPG increased its allocation to Korean market funds to 10%. Such region-specific funds restrict investments to within the region by their limited partners (LPs). If a manager cannot deploy the capital during the commitment period, it must return the funds to the LPs and cannot fully collect management fees. This creates inevitable pressure to execute deals. An IB industry source said, "Foreign players have established many funds that must be invested in Korea. Since they are in the trillion-won range, as long as there are deals, investments can be made easily."

Some also argue that the Korean market itself has become more attractive. In the case of TA Associates, it is expected to acquire CGBio using its global main fund rather than a region-specific fund. All global deals are analyzed by the investment committee at the U.S. headquarters. While region-specific funds compete within the region, main funds see many deals larger than those involving Korean companies. The headquarters determined that the CGBio acquisition was more valuable than other global deals. This indicates that the value of the Korean market and its companies has risen. Similarly, when TPG established Fund VIII, it reduced its China investment allocation from 25% to 10% and increased Korea’s share to 10%.

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The "onslaught" of foreign players is expected to intensify further. Major managers have already completed fundraising in the first half of this year and are searching for targets. According to PitchBook, PEF fundraising in the Asia-Pacific region in the first half of the year reached USD 47.37 billion (about 71 trillion won), with EQT, Blackstone, and Bain Capital accounting for 85% of this amount. Especially amid risks such as inflation and exchange rate fluctuations, managers are selectively deploying funds in Korea, with investment expected to focus on the energy and infrastructure sectors. In addition to its investment in SK, KKR is making similar investments in India and Australia.

An IB industry official said, "Foreign infrastructure funds such as KKR, EQT, and Brookfield are thirsty for deals, and especially in the energy sector, there is considerable dry powder left. There is strong interest in power plants, renewable energy, and data centers."

Meanwhile, in political circles, there may be moves to check foreign dominance over large deals, citing capital outflow. Kang Min-guk, a lawmaker from the People Power Party, analyzed reviews of foreign PEF business combinations and, noting the short review period, stated, "For several years, there have been ongoing concerns that foreign PEFs, leveraging large capital and soaring exchange rates, have aggressively purchased numerous domestic growth assets at undervalued prices and transferred the resulting profits overseas."

Legislative amendments are also being pursued. Assemblyman Kang stated that, based on EQT’s acquisition of Remember, there is a possibility of personal data being transferred overseas. He announced that he is preparing a bill requiring M&A deals involving personal data-holding companies to undergo prior review by the Personal Information Protection Commission.

This content was produced with the assistance of AI translation services.