This year, mergers and acquisitions (M&A) in the financial sector have been sluggish, leaving only inventory on the market. Next year, due to the deteriorating performance of financial institutions, economic recession, high exchange rates, and political instability, it is expected that M&A in the financial sector will be even more subdued than this year.
According to the financial sector on the 25th, there are currently 12 financial institutions either in the process of being sold or set to be sold, including insurance companies, card companies, and savings banks. Among the insurers, six companies are in the sales process: MG Non-Life Insurance, Lotte Non-Life Insurance, KDB Life Insurance, ABL Life Insurance, Dongyang Life Insurance, and BNP Paribas Cardif Life Insurance. Lotte Card, Sang Sang In Savings Bank, Akyuon Savings Bank, OSB Savings Bank, HB Savings Bank, and Joeun Savings Bank are also looking for new owners.
Among them, some are undergoing sales as potential buyers are being sought. Meritz Fire & Marine Insurance has been selected as the preferred negotiation partner for MG Non-Life Insurance and is conducting due diligence. However, it is reported that Meritz Fire is encountering difficulties with the due diligence process. MG Non-Life Insurance has not properly submitted the data required by Meritz Fire, and the labor union is also vehemently opposing the sale. Woori Financial Group is also pursuing the acquisition of Dongyang and ABL Life Insurance, but due to the prosecution investigation related to improper loans involving relatives of the former chairman, the final outcome remains uncertain, according to the financial sector. In addition, OK Financial Group is proceeding with the acquisition of Sang Sang In Savings Bank.
The remaining financial institutions are struggling to find new owners. In the case of KDB Life Insurance, all six attempts to sell have failed. In the last sale, Hana Financial Group, selected as the preferred negotiation partner, did not participate in the main bidding. It is reported that Hana Financial Group abandoned the acquisition because the expense relative to KDB Life Insurance's profitability was too high. The Industrial Bank of Korea is considering incorporating KDB Life Insurance as a subsidiary after halting the sale.
Woori Financial Group also entered the acquisition race for Lotte Non-Life Insurance and Sang Sang In Savings Bank this year but ultimately withdrew from both. It is reported that the high sale price of Lotte Non-Life Insurance was a major obstacle. The sale price suggested by the largest shareholder, private equity firm JKL Partners, is reported to be up to 3 trillion won. Lotte Card has also been put on the market several times but failed to finalize the sale due to unsuccessful price negotiations with potential buyers. Ultimately, no M&A transactions of financial institutions have been finalized this year.
The sluggishness of the M&A market in the financial sector is attributed to the passive attitude of financial holding companies, the major players in the market. For some time, as competition among financial holding companies to increase their size intensified, the prices of financial institution assets soared. A prime example is ING Life Insurance (now Shinhan Life), which was sold to Shinhan Financial Group. When sold in 2018, the sale price of ING Life Insurance was about 2.3 trillion won. Considering that ING Life Insurance's net profit for 2017 was 340.2 billion won, the price was considerably high.
Considering that the net profit of Lotte Non-Life Insurance, which is currently up for sale, was 301.6 billion won last year, market forecasts suggest that a similar sale price to that of ING Life Insurance will be established. As the price of financial institutions soars and high interest rates and economic recession affect the sentiment of financial holding companies, the overall M&A market for financial institutions has shrunk.
The investment banking (IB) industry anticipates that the financial M&A market will face a cold wave next year. This is due to economic recession weakening investment sentiment and the adverse impact of high exchange rates and increased political uncertainty. Some analysts suggest that due to the recent interest rate cuts, the performance of financial institutions has already peaked. Although lower interest rates will reduce the expense of acquiring financing for buyers, it comes with the downside of worsening the performance of financial institutions.
An official from the IB industry noted, 'Currently, it is not a situation where chairpersons of financial holding companies are willing to take big bets and engage in aggressive M&A.' They added, 'From next year, the overall profitability of the financial sector is expected to show a downward trend, indicating that the cold wave in the M&A market will likely continue.'