As large corporations are separating and selling off non-core businesses through “carve-out” mergers and acquisitions (M&A), this practice is becoming a core investment destination for domestic private equity firms. Analysts attribute this trend to the alignment of interests between major corporations securing cash amid recession concerns and private equity firms needing to liquidate.
According to the financial investment industry on the 19th, the Korea Capital Market Institute recently reported that “as the restructuring of large corporations' business portfolios intensifies, carve-out transactions are increasing, and the role of private equity will further expand amid a depressed overall M&A market.”
According to the Korea Capital Market Institute, the number of M&A transactions conducted in a carve-out manner in Korea increased sharply from 8 cases in 2022 and 10 cases in 2023 to 17 cases last year. Last year, notable examples included the sale of SKC’s polyurethane raw material subsidiary SK Pucore, SK Enpulse’s fine ceramics business, and the Taeyoung Group’s environmental subsidiary Ecorbit. These were sold respectively to Glenwood Private Equity, Hahn & Company, and the IMM Investment Consortium.
This year, Hahn & Company has consecutively acquired SK Enpulse’s CMP pad division and SK Group affiliate special gases company SK Specialty, drawing market attention. Industry insiders believe that SK Siltron and LG CHEM’s aesthetics division are also likely to emerge as future carve-out assets.
Analysis by the Korea Capital Market Institute suggests that carve-out M&A significantly increased last year as major corporations focused on selling non-core business areas to secure liquidity (cash) amid concerns of economic downturn.
The Korea Capital Market Institute projected that domestic private equity firms still hold significant amounts of unexecuted commitments, indicating they will actively seek large investments. Indeed, some private equity firms have formed carve-out specialized funds exceeding 1 trillion won, indicating their growth.
Carve-outs involve complex procedures and high transaction difficulty during the separation and independence process; however, they are regarded as an attractive strategy because they allow for the acquisition of undervalued divisions, improving cost structures and enhancing corporate value, thus expecting high revenue.
The Korea Capital Market Institute noted, “As the interests of large corporations requiring business restructuring and private equity firms seeking high-yield opportunities align, carve-out M&A is increasing worldwide, including in the U.S., Europe, and Japan,” and added, “It is essential for private equity to create an ecosystem where undervalued divisions are improved in value and subsequently sold in the market, playing a key partnership role in the restructuring process of large corporations.”
However, it also mentioned that as financial authorities are reviewing the private equity system broadly following the Homeplus private equity selling controversy, regulatory environment changes may become a future variable.