US investment bank Morgan Stanley expects South Korean companies, cashed up, confident and armed with a strong won, to step up acquisitions at home and offshore this year as they look for new ways to grow.
Companies such as world No 1 TV maker Samsung Electronics Co and POSCO, the world's fourth-largest steelmaker, weathered the financial turmoil better than their rivals, so are in a good position to pounce on potential targets.
"For 2010 we are very optimistic as to M&A volumes in Korea, and not just for Korea but in a number of jurisdictions across Asia," Peter Chang, a Morgan Stanley executive director based in Hong Kong, told Reuters in an interview.
"In Korea specifically, because many Korean corporates have been less affected by the financial crisis last year there's certainly some advantages, particularly as it pertains to outbound M&A." Morgan Stanley topped the league tables for South Korea in 2009, advising on $10 billion worth of announced deals and $4.4 billion in completed deals, according to Thomson Reuters data.
Chang said it was hard to predict whether the value of deals in South Korea would beat the $51 billion in announced mergers and acquisitions last year, up 19 percent on 2008, as the South Korean market tended to be lumpy in terms of large deals.
But he expected the market to beat the 1,297 deals announced last year. While consolidation among local financial institutions is likely to be a big driver of M&A activity, the Morgan Stanley team sees deals on the boil across a range of sectors.
"Historically financial institutions within the domestic Korean M&A market have been active. We would expect that to continue over the next few years," Chang said.
"But in terms of the level of interest and dialogue we have seen, it is very much across the board." Already on the radar are two deals involving targets in Thailand, with POSCO having said it is close to taking over Thainox Stainless Pcl and state-owned Korea Development Bank bidding for a $900 million stake in Siam City Bank.
POSCO is eyeing bigger deals at home - a 68 percent stake in Daewoo International, worth 2.4 trillion won ($2.1 billion), and a majority stake in Daewoo Shipbuilding, worth 1.9 trillion won.
Financial institutions deals are likely to be dominated by the privatisation of Woori Finance, led by Korea Deposit Insurance Corp, and private equity group Lone Star's sale of its stake in Korea Exchange Bank (KEB), said Morgan Stanley's head of Korea investment banking, Jae Wook Yoo.
The pace of acquisitions is likely to be fuelled by greater financing capacity, with companies likely to move beyond relying on syndicated loans provided by Korean banks to fund deals.
"Over time, we'd expect a diversification of the sources of funding into equity and potentially overseas debt as well," Yoo said. Companies like POSCO might also look to sell their stakes in other local companies through block trades to help fund acquisitions, he said.
On equity capital markets activity, Morgan Stanley ranked fourth last year, managing about $1.1 billion worth of issues giving it an 8.2 percent market share, behind Daewoo Securities, Woori Investment & Securities Co and UBS.
Its ranking this year should be helped by its role as a lead manager on the market's biggest planned initial public offering, the float of Samsung Life, worth more than 4 trillion won. Is the step up in acquisitions likely to end up in tears?
"Given the historical conservatism of Korean corporates, we think they would look at these deals very, very carefully before doing an overseas deal," Chang said.
Comments
Comments are closed.