South Korean companies are turning to private equity funds (PEFs) for support when engaging in mergers and acquisitions (M&A) as they provide stable funds based on their wide access to capital markets.

According to the investment banking (IB) industry on Thursday, candidates for acquiring Korea’s largest container shipping company HMM Co. are mulling forming respective consortiums with PEFs ahead of the preliminary bid scheduled for August 21.

HMM is considered an active target, given its more than 25 trillion won ($19 billion) assets based on the Fair Trade Commission data and stable shipping and logistics business.

The deal is estimated to be worth more than 5 trillion won.

The potential buyers of HMM are exploring the possibility of partnering with PEFs that can act as a secondary shareholder for a relatively long period with solid financial resources.

Harim Holdings Co. is known to be pursuing a joint acquisition of HMM with JKL Partners Inc.

JKL Partners has a history of working with Harim Holdings for the purchase of Pan Ocean Co. in 2015.

Global Sae-A Group is also seeking the possibility to attract IMM Private Equity Inc. as a financial investor, according to sources. The group partnered with the private equity firm in 2019 when it acquired Tailim Packaging Co. for 700 billion won.

Analysts note that SM, LX, and Dongwon are also likely to join hands with PEFs for the purchase.

“Most of the companies interested in the acquisition do not have enough cash to acquire HMM on their own,” said an investment bank industry official. “It is worth considering partnering with PEFs to cover the shortfall in acquisition funds and gradually buy out the PEFs’ stake to increase control.”

The growing participation of PEFs in the local M&A scene comes as the industry’s perception of them has changed.

PEFs used to be regarded negatively as gambling forces that aim for short-term gains but they are now considered an alternative for flexible use of the capital market.

A number of companies have seen their earnings draw an upward curve after PEF sale.

For example, W Concept Korea Co., which was sold by IMM Private Equity to SSG.Com Corp. for 265 billion won in 2021, posted sales of 136.7 billion won last year, up 30 percent from the previous year.

A slew of companies, in the meantime, is expected to be up for grabs in the second half of this year and buyers are projected to seek partnerships with PEFs amid the worsening economy and inheritance issues.

Lotte Insurance Co., Lotte Card Co., and SK Shipping Co.’s tanker division, all valued at several trillions of won, are looking for new owners.

Experts, however, advise companies to develop a thorough exit plan when they bring PEFs on board for M&As. As PEFs are funded by institutional investors, they have to realize profit after a certain period.

By Park Chang-young and Choi Jieun

[ⓒ Pulse by Maeil Business News Korea & mk.co.kr, All rights reserved]