Cross-border M&A must for Korean firms

With globalization, we are continuously moving toward a smaller world with greater cross-border business opportunities. According to PwC corporate finance practice, cross-border merger and acquisition (M&A) accounted for approximately 35 percent of all transactions globally in 2013. Though cross-border deals dropped in value close to 11 percent in 2013 compared to 2012, quarter to quarter deals is a rising trend, registering the fourth quarterly increase to $255.3 billion, as we speak.

The key drivers for companies expanding cross-borders, especially medium-sized Korean entities, which have reached a point of domestic market saturation, are growth and diversification toward new technologies and markets.

M&A is seen as the most common and quickest way of capturing growing cross-border opportunities, but it does not always guarantee success. With experience, the confidence levels of companies are rising continuously. However, one can not negate the past failed experiences, which account for approximately two-thirds of all past transactions.

In Korea, one of the most affluent nations in the Asia-Pacific M&A market, it has been actively taking its market share, helped by the rising popularity of Korean culture worldwide and solid technology. In its first quarter of 2014, Korea’s M&A activities saw more than 25 percent of all Asia-Pacific deals in value, which represent the highest since 2001. In Korea, systemized M&A practices have been around for many years together with rigorous valuation modelling and due diligence techniques.

However, in decoding Korea’s M&A success, most experts speak of how the market has been negligent toward intangible matters, which can exist in different forms such as cultural barriers, employee-related matters, political and social factors, and stakeholder pushback. These matters must be continuously and strategically managed throughout the M&A process, from execution, to negotiation, to closing and, more importantly, after closing.

Though many view cross-border deals as tough, not all transactions have been glimpsed at as failures. In analyzing successful M&A transactions, few common characteristics during the execution phase were found.

Notably a majority of these transactions were well-planned and executed together with use of various techniques to mitigate risks, such as employee buy-in and management retention and incentive programs, proactive engagement with government and regulators, partial buyouts and phased transactions. Designing and recommending creative techniques for successful negotiation and transaction outcomes are best done by effectively utilizing competent and cross-border experienced professional advisors.

Additionally, upon completion of the transaction execution, next comes another task: post transaction integration (PTI). The successful M&A demands comprehensive integration planning as the single most important factor in creating shareholder value.

Every industry has different key success factors in integration but one commonality is that integration is an ongoing and iterative process. Many Korean companies who have successfully performed integration take a proactive approach to clearly measure the level of effectiveness of PTI through various performance matrixes: customer retention, margin expansion, actual time to integrate vs. projected time to integrate, asset valuation, return on equity, market share, talent retention and supplier retention.

Whether its deal origination, execution, negotiation or PTI, many organizations are working closely with advisors, such as financial advisors, accountants, lawyers and management consultants, to leverage on their expertise, experience and network. However, it is imperative that prior to hiring the advisors, firms must conduct thorough due process to ensure the “right” advisors are selected.

The definition of right advisor can vary by transaction and the need of the organization, but the most common soft characteristics to look for are as follows: internationally experienced, multi-lingual capable, geographical expertise, understanding of global business practices and manner.

The right advisor will go a long way in making the deal a successful one.

The new era of Korean companies seeking overseas opportunities is imminent as companies are accumulating capital and are in dire need of growth and diversification. What may have been the challenge in the past and perhaps today may become the strengths in the future. Namely, past mistakes and exemplary experiences have exposed and pushed Korean companies toward adoption of many useful and creative global standards putting them side-by-side their global peers and competitors.


By Steven Jeong
The Korea Times