C&G Forum Holds Seminar on "Private Equity (PE) and Merger Review"

Excerpt from presentation materials for the seminar on Private Equity (PE) and Merger Review (provided by C&G Forum)

The C&G (Control & Governance) Forum, a research group of experts on corporate governance and management control rights chaired by KAIST Professor Kim Min-gi, said it held its regular seminar on the 4th on “Private Equity (PE) and Merger Review.”

The seminar was organized to discuss the impact of private equity acquisition strategies on market competition and their implications for domestic merger reviews, as South Korea’s private equity (PE) market grows rapidly. Attendees included Professor Lee Hwaryeong of the Department of Economics at Sejong University, who delivered the presentation; Professor Kim Min-gi of the Department of Business and Technology Management at KAIST; Kim Hee-kyung, managing partner at Doyeong Law Firm; and Yu Hyo-sang, director of the Unicorn Management and Economics Research Institute.

Professor Lee focused on private equity firms’ acquisition strategies and investment exit structures. She identified three issues that merger reviews should closely examine in this process: “common ownership,” “roll-ups,” and “efficiency.”

Common ownership can weaken competition because, when the same investor holds stakes in several competing companies, each company may take its competitors’ profits into account.

“Most research to date has dealt with index funds that have little power to intervene in management,” Professor Lee said. “Private equity firms have much greater control because they can appoint directors or directly exercise management control, so they need to be scrutinized more carefully.”

Roll-ups, one of the most contentious issues in the United States recently, involve acquiring a large business in a particular region and then buying smaller businesses in the same market one by one.

“Each additional acquisition falls below the notification threshold and is therefore not reviewed,” Professor Lee said. “Then, at some point, you find that a single investor controls 60% to 70% of the market.”

A prominent example is the case against private equity firm Welsh Carson, filed by the U.S. Federal Trade Commission (FTC) in 2023. Over more than a decade, Welsh Carson successively acquired anesthesiology practices in Texas, raising its market share in some areas to nearly 70%, but none of the acquisitions was ever reviewed. After a court dismissed the claims against the firm, the FTC’s consent order went no further than requiring advance notification of future acquisitions.

“Measures telling a company to ‘do better going forward’ may mean little if the market has already been monopolized,” Professor Lee said. “Competition authorities overseas are moving toward reviewing acquisition ‘patterns’ by examining past acquisitions as well.”

The efficiency issue is closely linked to short investment periods.

“Because private equity firms need to exit within a few years, they have an incentive to focus on short-term returns rather than long-term corporate value,” Professor Lee said, citing the case of Steward Health Care in the United States. Steward, acquired by private equity firm Cerberus, was once considered a successful investment. However, after selling its hospital real estate and leasing it back to recover cash, it struggled with financial difficulties and filed for bankruptcy in 2024. “If you look only at the point when the cash was recovered, the company may appear to have been operated efficiently,” Professor Lee said. “It bears a strong resemblance to the domestic case of Homeplus.”

Professor Lee stressed that “claims of efficiency by private equity firms must be rigorously scrutinized.” She added, “Replacing management or restructuring a company can be done even without a private equity acquisition, so these measures are difficult to regard as efficiencies specific to a merger. Reviews should also consider the planned exit date, borrowing plans, and the firm’s past investment record.”

She noted that although cumulative private equity commitments in South Korea increased more than 15-fold, from 9 trillion won in 2007 to 167.5 trillion won in 2025, private equity issues are primarily discussed from a corporate governance perspective—such as the independence of the National Pension Service or management control disputes—rather than in terms of competition.

The ensuing discussion focused on the potential for roll-ups in the domestic market and the role of competition policy. Participants noted that U.S.-style roll-ups are difficult to carry out in South Korea because a single operator can run only one hospital or pharmacy, and that most “brand aggregator” models, which sought to build scale by bringing together small brands, had also failed. They also exchanged views on how to coordinate industrial and competition policies in relation to the merger of Korean Air and Asiana Airlines and the combination of Baemin and Yogiyo.

In practice, changes to fees and price increases before and after mergers in essential services such as delivery platforms and airlines, as well as in key industries, directly affect market ecosystems and consumer welfare.

Participants agreed that, as South Korea’s private equity market grows rapidly, authorities should consider a review framework that looks beyond individual transactions to examine firms’ acquisition records and investment structures together. They also agreed that the efficiency claims made by private equity firms should be scrutinized with a view to their impact beyond the exit.

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