M&A Boom Among Medium-Sized Companies

One of Korea’s leading food companies, the SPC Group, has been competing with LG Household Healthcare to acquire Coca-Cola Korea Bottling Company for some years.

Medium-sized Korean enterprises are increasingly looking for M&A opportunities. They are aggressively searching for M&A targets, whether they be big or small, domestic or foreign.

Dreaming of a Top 30 Company in Korea-

The Eugene Group, which started out as the Youngyang Confectionary in 1969, bought Korea Cement, a company listed on stock exchange, in 2004. It acquired Seoul Securities and Rogen Express from the end of last year to the beginning of this year. The company is also preparing to take over a large construction corporation through M&A. The group’s total assets snowballed from 350 billion won in 2001 to over one trillion won last year.

E-Land Group has grown substantially from a small clothing line in 1980. It increased its asset size from 1.3 trillion won in 2003 to 4.6 trillion won last year through a series of takeovers: New Core in 2004, Kim’s Club in 2005, and Carrefour Korea in 2006. Prime Group, now seeking to take over Dongah Construction Industrial Company, and STX Group, which bought near-insolvent companies and turned them around, have made great headway through mergers and acquisitions as well.

The main reason for this aggressive drive for M&A among medium-sized enterprises is that they are in a blind spot. In case of manufacturers, only companies with fewer than 300 employees or less than eight billion won in capital are considered SMEs. Otherwise, they are classified as large companies. If medium-sized companies make millions to hundreds of billions of won, the chances are that they will be considered large companies in legal terms.

However, such companies have to compete with large companies on a level playing field, without getting the government subsidies that SMEs do. Subsequently, the situation results in a strategy to scale up the size with M&A based on relatively fast and free decision-making processes.

M&A Specialist Academy President Kim Jong-tae said, “Medium-sized corporations are expanding their presence in the M&A market as opposed to large companies that are hesitant to make moves in the face of criticism against over-diversification.”

Medium-Sized Companies Going Global-

The E-Land Group is set to take over a renowned foreign brand. The group’s PR manager, Choi Seong-ho, confidently said that domestic companies are fully capable of taking over famous foreign brands and that E-Land will announce a surprising achievement by year’s end.

A recent trend shows that local mid-sized firms are eager to acquire foreign companies. One of the reasons is that the value of Korean companies has continued to increase since the 1997 financial crisis.

Vice president of Boston Consulting Group, Park Seong-jun, explained that mid-sized firms increasingly are requesting consultations on searches for and acquisitions of foreign target companies as the value of Korean corporations, previously considered to be takeover targets, has soared.

Analysts point out the urgent need for financial and institutional assistance to these companies such as fostering competent investment banks.

A researcher at the Hyundai Economic Institute, Lee Ju-ryang, said that Korea needs investment banks dedicated to singling out takeover targets and purchasing them at affordable prices.

sanhkim@donga.com