South Korea and China agreed to launch a US$1 billion fund that will focus on corporate mergers and acquisitions (M&A) between the two nations to further step up bilateral industrial cooperation, Seoul-based Korea M&A Exchange said Wednesday.
Korea M&A Investment Association signed an agreement with China M&A Association to jointly launch and operate the private equity fund to boost corporate investment and venture start-ups through buyouts.
The two sides will first invest $100 million each to create the fund and establish a South Korean headquarters in Seoul and a Chinese branch in Hong Kong, the Seoul association said.
"The two associations will jointly launch and administer the private equity fund to expand cooperation in the M&A, investment and IPO (initial public offerings) areas," Wang Ping, China M&A Association president and chairman of Kingwin Capital Group, said during a signing ceremony held at the Korea Exchange in Seoul. "The fund will invest in M&A groups of the two nations for the maximum profits of investors."
Ping said the fund will focus on such areas as shipbuilding, IT, games and cutting-edge industries, without elaborating on the size and details of the proposed investment.
The latest move comes as Seoul considers easing regulations and providing tax incentives for buyout companies as South Korea has been falling behind its Asian peers in the M&A sector due to tough scrutiny and negative sentiment toward foreign takeovers among regulators and the public.
Policymakers have vowed support to revitalize the local M&A market to help companies seeking synergies through integration and troubled firms that need an exit strategy.
Rep. Kim Jong-hoon of the ruling Saenuri Party, who submitted a bill calling for a lowered investment ceiling for the buyout firms, urged the government and public sectors to make joint efforts to foster the financial sector.
"There is still negative sentiment over overseas corporate buyers, viewing them as predators that take profit here and then leave," Kim said at a M&A seminar Wednesday. "Rather than putting blame on others, it is better to develop our own measures to develop the local market to provide more opportunities for companies."
South Korean companies have long preferred organic growth over expanding business through acquisitions.
Out of 860 companies that have become affiliates of South Korea's top 30 business groups in the last decade, 519 firms, or 60 percent, were spun off or newly established, while 40 percent joined the conglomerates through M&A deals, data by market researcher CEO Score showed.
However, the pace of private equity buyouts has recently seen a pickup with a steady domestic stock market and a wave of targets put on sale by local conglomerates and foreign companies.
According to the U.K.-based information provider Mergermarket Group, M&A activities in South Korea had a remarkable start to the year, with 67 deals worth a combined $25.3 billion in the first quarter. This marks the highest quarterly value since 2001 and is more than double than the previous quarter.