All-in Strategy Boosts Citi in Korea’s M&A Market
Citi Global Markets Korea, the Citigroup's investment banking arm in Korea, made remarkable achievement last year, solidifying its leading position as an M&A advisor in the local market.
Citi has ranked among the top tier of Korea M&A advisors in each of the last eight years, and is No. 1 in terms of cumulative transaction value for 2001 to 2008, according to Thomson Financial.
It advised on seven of the 10 largest deals in 2008 including Eugene Corp. on its acquisition
It also advised on the sale of the majority owner and related party's 65.1 percent collective stake in C&M ($1.46 billion), as well as on Lone Star's takeover of Korea Exchange Bank ($1.17 billion).
Park Jang-ho, CEO of Citigroup Global Markets Korea and head of Korean Investment Banking, said that the secret behind Citi's success is simple. It is Citi's ``all-in strategy,'' which focuses on key industries and clients.
``Since it is impossible to participate in all the M&A deals both at home and abroad, we first try to select key industries and clients. Then once there is a deal in such industries, we concentrate on the deal by injecting most of our energy in it,'' he said.
``In other words, our unique strength is a `timely approach'. Since we have accumulated know-how and experience in the M&A area, we are able to provide relevant M&A information for our clients in a timely manner,'' he added.
Thanks to its focusing strategy coupled with intensive work, Citi has acquired a proven track record and reputation here, which Park believes is the core element of M&A advisory business.
``We try to set up our database by industries on a continuing basis and offer our potential clients M&A information and ideas, which helps us extend a business network and snap up opportunities when a deal occurs,'' he said.
``Building a trust with clients is crucial in this business. For that reason, if any company can be a good client in the future, we sometimes participate in a relatively non-profitable deal for future business opportunities,'' he added.
Park said that Citigroup's extensive global network is another strength of Citi Global Markets Korea over its rivals here.
``We share our database and know-how globally. So when there is a cross-border M&A deal like Doosan's Bobcat acquisition, the global network helps a lot,'' he said. To date, Citi has acted as the buy- or sell-side advisor for five of the 10 largest cross-border M&A transactions involving Korean companies.
Citigroup is the top investment bank for advising on M&A this year, according to Thomson Reuters. Citi has had its hands in about 45 percent of the M&A deals announced so far this year around the world.
``You have to go through lots of trial and error to become a top-tier M&A advisor able to complete a major cross-border M&A deal. Since it requires all kinds of procedures, such as valuation, legal review, strategy and negotiation, M&A is seen as the core part of the investment banking,'' he said.
In M&A deal, Park stressed that success depends heavily on post-M&A management.
He said that Doosan's acquisition of Bobcat is the very example of successful M&A case.
``After taking it over, Doosan focused on post-M&A management by selling off non-core assets and concentrating on key businesses, which I believe enabled the business group to manage to tide over the ongoing crisis,'' he said.
M&A Market Recovering
In 2009, the M&A market both at home and abroad is experiencing a setback due to a severe liquidity crunch in the wake of the global financial crisis triggered by the U.S. subprime mortgage meltdown.
According to Citi Global Market, the volume of M&A deals in Korea was valued at $1.17 billion in the first half of this year, compared with $4.57 billion for the whole of last year.
The first-half figure is equivalent to 9.1 percent of Asia's M&A deals valued at $12.81 billion and one percent of the global M&A transactions estimated at $1.11 trillion, which are compared with the last year's $30.12 billion and $2.92 billion, respectively.
Park cited three key factors for the sluggish M&A market ― valuation gap, contracting acquisition financing and private equity funds (PEF)'s reduction of investment.
``After the bankruptcy of Lehman Brothers, the valuation gap between a buyer and a seller has been widening. In addition, acquisition financing has become less available due to growing uncertainties over the financial market,'' he said.
However, there are signs of a pickup in M&A market in line with a recovery in equity and fixed income markets bolstered by eased credit crunch.
``Although it is not likely to recover to the last year's level, I think that the domestic M&A market will slowly rebound in the second half in line with a recovery in the financial market,'' he said.
``There are a couple of big M&A targets, such as Hynix Semiconductor and Daewoo Shipbuilding & Marines, and some global investors are interested in Korean assets,'' he added.
Over the past few years, Koreans have seen a lot of mergers and acquisitions (M&A) take place that didn't exist 10 years ago. Park pointed out that this development is very healthy for the economy and businesses.
``M&A provides opportunities for businesses to pursue sustainable growth through restructuring and refocusing,'' Park said, noting that there are few companies that became global players without M&A.
Park painted a rosy picture over the future course of the Korean economy.
``Korean companies have shown relatively very good business performance despite the global economic crisis. I think that the economy has bottomed out and is on the course toward a recovery,'' he said.
``Thanks to lessons from the 1997-1998 financial crisis, the country has acquired better capabilities to tide over the crisis,'' he added, citing banks' restructuring know-how and sound capital base. But he stressed that in order to ensure a fast economic recovery, the country needs to continue to push for corporate restructuring.