M&A market expected to grow amid interest rate cuts in late 2024

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Korea's mergers and acquisitions (M&A) market, which had largely been stagnant throughout last year, is expected to gain momentum again in the latter half of 2024, as central banks of major countries are slated to implement key interest rate cuts, lowering businesses' cost burden in acquisition deals.

Financial industry insiders estimate the aggregated size of the domestic M&A market contracted last year by over 20 percent compared to the previous year, due to high interest rates and concerns over an economic downturn. The total transaction size of domestic M&A deals exceeding 5 billion won ($3.8 million) stood at 30.6 trillion won in 2023, a decrease of 22 percent from 39.4 trillion won logged in 2022.

In particular, the number of so-called "big deals," with a transaction size of over 1 trillion won fell to a mere five, down from eight in 2022. Last year's number stood at only one-third of 15 big M&A deals signed in 2021.

Despite the sluggish performance of the local M&A market last year, market watchers pointed out that it may regain vitality later this year. Expectations of global interest rate cuts would make funding smoother, leading to an increase in mega-deals worth trillions of won.

"Later this year, Harim is facing a mega-deal signing to acquire HMM. That alone is worth 6.4 trillion won. The single deal could contribute to the recovery of the transactional volume in the local M&A market to a certain degree. Especially, Samsung Securities and Samil PwC, which provide advisory services for the sale deal, are expected to accumulate sizeable annual records with the deal," a market insider said.

There is also a view that the M&A market could grow significantly during the second half of this year amid a looming real estate project financing crisis in the country, as some financial and construction-related companies could be driven to sell off non-performing assets or properties to make up for deteriorated profitability caused by the crisis.

For instance, Taeyoung E&C, which has embarked on a corporate restructuring process at the end of last year, selected Samil PwC as the lead adviser for the sale of some of its subsidiaries to secure liquidity.

While the number of M&A transactions is generally expected to grow later this year with the easing of inflation and increasing corporate profits, coupled with reduced funding costs, some market analysts raised a voice of concern that the full recovery of the business acquisition might take a little more time than that.

"Although there are expectations that the number of M&A opportunities would increase with the slated fall in interest rates later this year, the actual timing for the global interest rate cuts is expected to be around the middle of this year or later. As real interest rates should fall stably in order for market participants to feel the effects, I think the impacts from the rate cuts would begin to kick in nearing the end of this year," Park Sang-hyun, an economist at Hi Investment & Securities, told The Korea Times, Tuesday.

"While the increase in the number of distressed companies under challenging situations, such as the real estate portfolio crisis, could lead to a rise in M&A transactions, it would still be too early to say that the market conditions would be ready for the recovery of the M&A market this year, given various threat factors facing the global financial industry."