Korean M&A scene ripe with equity sale instead of buyouts

The Korean M&A activity has moved to stake sales instead of buyouts amid higher interest rates and stagnant stock market.

Tving, third largest video-on-demand platform in Korea, is offering 300 billion won ($255 million) worth of new shares, which would be tantamount to 10 to 20 percent stake, in a private placement. Its deal advisor Nomura Securities already has sent out prospectus to multiple private equity firms upon request, according to investment bank industry sources on Wednesday.

Tving hopes the financing scheme could boost its value to over 2 trillion won.

The video streaming service, spun off from CJ ENM last year, boasts 1.5 million paid memberships. It aims to boost the count to 8 million by 2023.

Thanks to Squid Game and other Korean shows’ global success, video on demand service providers like Tving are also receiving great attention from international investors, said an industry observer.

He projected the stake buyer could enjoy more than doubled returns even if the platform achieves half the membership target.

Another big stake offering involves privatization of Woori Financial Group.

A tender for Woori Financial Group Inc. stake held by state-run Korea Deposit Insurance Corp (KDIC) is currently underway with 18 companies including KT and Eugene Private Equity shortlisted as buyer candidates.

Amorepacific Corp, a cosmetics major, last month announced it will acquire a 38.4 percent stake in cosmetics maker COSRX Inc. for 180 billion won on Oct. 29. Samchully Asset Management Company, also in September, signed a deal to take over 10 percent stake in renewable energy firm Daemyung Energy Co., while private equity firm VIG Partners sold 10 percent stake in funeral service provider PreedLife Co. to another private equity firm Mastern Partners for 50 billion won.

The turnaround in the M&A market from buyout deals to minor stake investment underlines the market’s expectation for rise in interest rates. Investors typically finance from 40 to 70 percent of their buyout through loans, meaning that higher interest rates would make buyouts more expensive.

The stock markets have been bearish recently, which affects a company’s worth. Companies tend to inflate value when stock market is on the up cycle.

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