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Management Report

Management reports, briefs issued by Samsung Economic Research Institute

Lessons from Global Companies’ M&As

Lessons from Global Companies’ M&As

KIM Sung-Pyo

May 10, 2010

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Interest in mergers and acquisitions is heightening among Korean companies, who view M&A activity as a way to jump-start their sluggish growth. Sales, which rose more than 15% before the 1997 currency crisis, have stalled since, growing at 7.4% from 1998 to 2008. Given their lackluster trend line, Korean companies need to find breakthroughs that can revitalize their sales growth. Accordingly, a survey of Korean executives conducted by Samsung Economic Research Institute (SERI) found 68% of 288 respondents planning M&As, a reflection of the high interest in business deals shown by Korean corporations.

Still, up to now, M&A activity has not matched the recent interest. Korea's announced M&A volume is quite small in proportion to its economic size (world's tenth largest economy). As of 2008, Korea ranked 32nd in the number of announced M&A deals and 38th in the number of M&As abroad, according to Korea Economic Research Institute. It starkly contrasts with the M&A appetite of Asian peers such as Chinese and Indian companies. In the first quarter of 2010, Asia M&As driven by Chinese and Indian companies jumped 126% year-on-year, posting a record high for the quarter. The main reason that Korean companies have sealed fewer M&A deals is lack of confidence in internal capabilities. That in turn stems from their lack of experience, conservative corporate culture, and management's defensive attitude toward M&A deals rather than external factors, according to the SERI survey results.

In addition, bad memories about M&As (government-led M&As for an industrial restructuring, hostile M&A attempts by hedge funds and financial troubles after an acquisition beyond a company's capacity) have given Korean business executives a negative perception of M&As and spawned a defensive attitude toward them. Consequently, Korean companies have thus far relied on organic growth while global companies are using a combination of M&As and organic growth to expand. This highlights the need for Korean companies to regard M&As as a tool to pursue growth and to utilize them as a growth strategy while minimizing their risks.

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