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South Korea’s merger and acquisition (M&A) market is expected to heat up next year as the country’s major private equity funds with a large fresh capital worth more than $12 billion in total are expected to seek attractive buyout deals aggressively for higher returns.

According to multiple sources from the investment banking industry on Wednesday, local private equity fund majors are anticipated to raise a combined 15.23 trillion won ($12.7 billion) capital once they complete their ongoing capital raising for blind funds.

This would be the largest-ever PEF capital since the Korean PEF market first opened in 2004. Until 2016, there were only six Korean PEFs worth trillions of won, each, including four by MBK Partners, one by Hahn & Company, and one by IMM PE.

MBK Partners, Korea’s largest PEF player, has recently raised $4.2 billion in its first round of pooling. The entity plans to create up to a $6.5 billion fund with additional funds from local and foreign institutional investors by early next year.

Another PEF Hahn & Company – which owns major local manufacturing companies such as Ssangyong Cement Industrial Co. – also completed creating a 3.8 trillion won ($3.2 billion) fund in September. IMM PE, another top private equity fund invested mostly by local institutional investors, has raised 1.9 trillion won worth of funds as of the end of November and plans to up the fund size to 2.2 trillion won by early next year to create a blind fund.

STIC Investments, another Korean PEF major, has already gathered 1.2 trillion won in funds and plan to create a 1.5 trillion won worth Special Situation Fund.

An unnamed official from the investment banking industry said that local and foreign institutional investors that are disappointed with the protracted low interest rate environment and the slump in local stock market are turning to PEF investments for higher returns.

The major PEFs with a large amount of fresh funds are expected to play significant roles in the local M&A market that will likely boom next year as the country’s conglomerates are gearing up for massive restructuring including the divestitures of some of their businesses. Global PEFs such as KKR, Carlyle Group, Blackstone, Bain Capital, TPG Capital, and Affinity Equity Partners are also said to be eyeing on large deals in the Korean M&A market.

Industry insiders anticipate that local PEFs would be able to bump up total capital up to 40 trillion won next year if they successfully take loans from financial institutions or secure additional funds from local and foreign institutional investors as joint investors.

This year, local PEFs have already gobbled up big M&A deals worth trillions of won in Korea. MBK Partners acquired Lotte Card, IMM PE Linde Korea, and Blackstone Geo-Young.

[ⓒ Maeil Business Newspaper & mk.co.kr, All rights reserved]