Citigroup’s Park Sees ‘Explosive’ Rebound in Korean M&A

Acquisitions by South Korean companies are set to rebound as much as 30 percent in 2013, from a seven-year low this year, as a stronger won and improved earnings drive overseas purchases, according to Citigroup Inc.

“While South Korean companies are becoming more active in cross-border transactions, they haven’t been aggressive enough,” said Jangho Park, head of Korean investment banking at Citigroup, the country’s top M&A adviser. “Deal volumes will be explosive in two to three years as they learn from trial and error.”

Strength in the won, Asia’s best performing currency against the dollar over the past year, will fuel Korean companies’ appetite for takeovers after the value of U.S. and European targets has declined, Park said in an interview yesterday. Globally, mergers and acquisitions this quarter have slumped to a level unseen since the aftermath of the financial crisis amid concern the economic recovery is waning.

South Korean takeover announcements have dropped to $38.5 billion this year, compared with $39.8 billion for the same period a year earlier, according to data compiled by Bloomberg. Deals involving the country’s companies tallied $53.3 billion for all of last year, the data show.

The value of this year’s acquisitions may fall as much as 15 percent from 2011, Park said.

Domestic Pickup

Resuming sales of state-owned assets and political pressure to break up large industrial groups will help spur mergers and acquisitions domestically next year, Park said.

“Big conglomerates want to streamline their businesses and improve their core efficiency,” he said. “Public criticism over excessive expansion would also be a factor in deciding to sell assets.”

South Korean deals this year helping Citigroup top the country’s rankings include Lotte Shopping Co.’s $1 billion takeover of electronics retailer Himart Co. in July and Hanwha Chemical Corp.’s purchase of German solar company Q-Sells SE.

The government’s delayed sales of Woori Finance Holdings Co. and Daewoo Shipbuilding & Marine Engineering Co. stakes may resume next year following the presidential election in December, according to Park. Investors’ uncertainty related to policies under a new administration should ease, he said.

Citigroup, the third-largest U.S. bank by assets, this year holds 22 percent of the market for advisory deals involving Korean companies, according to data compiled by Bloomberg.

Rebounding Fees

Park expects fees on advisory services in the country to rise as foreign firms have left the market amid volatile economic and market conditions. Overseas banks are becoming more conservative in assessing financing risk, while Korean banks are becoming more aggressive in funding local and overseas purchases, he said.

“With weaker players out of the field, I see the worst is over and fees will likely begin rising from this year after hitting a bottom over the last couple of years,” Park said.

Companies worldwide have announced $446 billion of takeovers since June 30, the smallest amount since the third quarter of 2009, according to data compiled by Bloomberg.

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