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Frozen M&A market rings alarm bells over bankruptcies

By Kim Bo-eun

gettyimagesbank
gettyimagesbank
The coronavirus-triggered freeze in M&A deals in the first few months of the year is raising concerns over potential large scale bankruptcies in the latter half of 2020.

According to the Korea M&A Exchange, the number of deals in the first five months has dipped by 30 percent compared to the same period a year earlier.

Large deals have been put on hold. HDC Hyundai Development signed a deal to take over Asiana Airlines in December and was set to take over the air carrier's shares in April, but the deal has been postponed indefinitely. Jeju Air's planned takeover of Eastar Jet had also been set to be completed by April, but the deal is also up in the air. The possibility of the deals being scrapped has been raised from within the industry.

The cash-strapped Doosan Group's received 2.4 trillion won from its main creditors and is set to receive an additional 1.2 trillion won if it sells assets and normalize operations, but has so far made little progress. The embattled group has put affiliates including Doosan Solus, a copper foil maker for electric vehicles, up for sale, but no deals have been made yet.

Major private equity firms as well as conglomerates have loaded up on capital, but firms planning a sell-off are seeking postponements as the COVID-19 situation is making corporate valuations disadvantageous.

"This is why the volume of deals has fallen. Companies seeking acquisition are taking the current situation as an opportunity, but firms that consider themselves to have value are putting off sales," Korea M&A Exchange Chairman Lee Chang-hun said.

"In some cases we also see firms that were seeking to acquisitions put themselves up for sale. This illustrates the impact of the COVID-19 crisis on businesses."

The impact of COVID-19 is expected to last for the time being.

"If you look back on the past such as when the dot-com bubble crash or the 2008 financial crisis, the value and volume of M&A deals fell, in some cases for up to two years," an M&A consultant said.

This creates dire circumstances for distressed firms. A number of small-and medium-sized enterprises in the travel as well as fashion industry have filed for bankruptcy in recent months following the outbreak of the COVID-19 pandemic. Sungchang Interfashion known as the manufacturer of Anne Klein bags filed for bankruptcy in April.

Data from the Supreme Court shows 337 firms filed for bankruptcy in the first four months of this year, up 10 percent from 307 in the same period last year. The figure is expected to grow in the coming months as more businesses feel the brunt of the coronavirus crisis.

"It is likely we will see the number of firms going bankrupt grow," Lee said.

The M&A expert said "M&As usually play the role of clearing up the market. This is why the government should not excessively regulate deals."


By Kim Bo-eun

gettyimagesbank
gettyimagesbank
The coronavirus-triggered freeze in M&A deals in the first few months of the year is raising concerns over potential large scale bankruptcies in the latter half of 2020.

According to the Korea M&A Exchange, the number of deals in the first five months has dipped by 30 percent compared to the same period a year earlier.

Large deals have been put on hold. HDC Hyundai Development signed a deal to take over Asiana Airlines in December and was set to take over the air carrier's shares in April, but the deal has been postponed indefinitely. Jeju Air's planned takeover of Eastar Jet had also been set to be completed by April, but the deal is also up in the air. The possibility of the deals being scrapped has been raised from within the industry.

The cash-strapped Doosan Group's received 2.4 trillion won from its main creditors and is set to receive an additional 1.2 trillion won if it sells assets and normalize operations, but has so far made little progress. The embattled group has put affiliates including Doosan Solus, a copper foil maker for electric vehicles, up for sale, but no deals have been made yet.

Major private equity firms as well as conglomerates have loaded up on capital, but firms planning a sell-off are seeking postponements as the COVID-19 situation is making corporate valuations disadvantageous.

"This is why the volume of deals has fallen. Companies seeking acquisition are taking the current situation as an opportunity, but firms that consider themselves to have value are putting off sales," Korea M&A Exchange Chairman Lee Chang-hun said.

"In some cases we also see firms that were seeking to acquisitions put themselves up for sale. This illustrates the impact of the COVID-19 crisis on businesses."

The impact of COVID-19 is expected to last for the time being.

"If you look back on the past such as when the dot-com bubble crash or the 2008 financial crisis, the value and volume of M&A deals fell, in some cases for up to two years," an M&A consultant said.

This creates dire circumstances for distressed firms. A number of small-and medium-sized enterprises in the travel as well as fashion industry have filed for bankruptcy in recent months following the outbreak of the COVID-19 pandemic. Sungchang Interfashion known as the manufacturer of Anne Klein bags filed for bankruptcy in April.

Data from the Supreme Court shows 337 firms filed for bankruptcy in the first four months of this year, up 10 percent from 307 in the same period last year. The figure is expected to grow in the coming months as more businesses feel the brunt of the coronavirus crisis.

"It is likely we will see the number of firms going bankrupt grow," Lee said.

The M&A expert said "M&As usually play the role of clearing up the market. This is why the government should not excessively regulate deals."


Kim Bo-eun bkim@koreatimes.co.kr

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