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By Park Jae-hyuk
The domestic M&A market could not avoid the impact of COVID-19 outbreak as all industry sectors fell victim to the global epidemic, according to market analysts, Tuesday.
In addition to the deteriorating investor sentiment on business-to-consumer (B2C) companies, the continuous spread of the virus has lowered the prices of several items on the M&A market and delayed the progress of some deals.
The Eastar Jet deal on Monday was one example of the so-called "corona discount."
A 51.17 percent stake in the low budget carrier was acquired by its rival Jeju Air for 54.5 billion won ($45 million), down 15 billion won from the 69.5 billion won the two companies agreed on when signing a memorandum of understanding in December last year.
"It is believed that Jeju Air was able to acquire the controlling stake at a lower price because Eastar Jet will face worsening profitability over the coronavirus outbreak," SK Securities analyst Yoo Seung-woo said.
IMM Private Equity, which became the largest shareholder of HanaTour through a third-party allotment of shares last month, cut the price of new stocks to 55,500 won per share from 58,000 won.
As a result, the private equity firm (PEF) was able to buy those shares for 128.9 billion won ― not the 134.7 billion won it was supposed to pay according to the agreement it signed with the travel agency in December.
Since the start of the virus outbreak, HanaTour shares have remained sluggish and bookings for package tours using the company dropped sharply.
In an apparent attempt to overcome the crisis, IMM recommended Boston Consulting Group managing director Song Mi-sun, who led IMM's due diligence on Hana Tour, as the new co-CEO of HanaTour.
Hana Financial Investment analyst Lee Ki-hoon said: "IMM's decision to issue new stocks at 55,500 won per share means it will carry out a large-scale restructuring."
Some companies are facing difficulties in moving forward with their M&A deals.
According to industry sources, the main bid for Prudential Life Insurance Company of Korea is likely to be delayed as potential buyers have found it difficult to hold meetings with executives of the life insurer's U.S. headquarters.
Although Prudential's U.S. executives have talked with bidders through video conferences, sources said Korean employees have complained of the global headquarters' order to gather dozens of people at the same place.
Amid the growing complaints, Prudential postponed its interview with KB Financial Group executives, which was slated for Feb. 26.
Hong Kong-based Baring Private Equity Asia has also faced difficulties since the competition for Logen lost steam.
As strategic investors have focused more on stabilizing their ongoing businesses after the coronavirus outbreak, the PEF seems to need more time to exit its investment in the nation's fourth-largest parcel delivery company.
The outlook for food and beverage brands on the market is even worse.
PEF-owned franchises ― Outback Steakhouse Korea, Hollys F&B, Nolboo and Mad for Garlic ― have been mentioned as items that would heat up the domestic M&A market this year, since several food franchises were sold to new owners last year.
Analysts, however, expect it will now be tough for PEFs to unload the brands, as the restaurant business is now less attractive for investors.
"As consumers have refrained from eating out amid the spread of COVID-19, sales of restaurants during the first quarter will likely drop 10 to 15 percent year-on-year," Kiwoom Securities analyst Park Sang-joon said. "The decline could be sharper, depending on how the crisis unfolds."
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