This article was published on Jan. 14, 2025, at 6 p.m. on the CHOSUNBIZ MoneyMove site.
Properties undergoing corporate rehabilitation procedures are being overlooked in the mergers and acquisitions (M&A) market. Industry sources cite the lack of attractive properties even after going through debt restructuring processes, such as a partial debt write-off. In a situation where applications for corporate rehabilitation and bankruptcy are sharply increasing, private equity fund (PEF) operators managing restructuring funds are also turning their attention elsewhere.
According to the investment banking industry on the 14th, recent bids for the management rights of Dongyang Systems, Medi Phama Plan, Jesco Power, and the KOSDAQ-listed company Eon Diagnostics (EDGC), which are undergoing corporate rehabilitation procedures, were unsuccessful. A commonality among these companies is that there were no prospective buyers participating in the acquisition auction. Even the second-largest shareholder and financial investor (FI) of Dongyang Systems, a PEF operator, abandoned its investment and did not participate in the bidding.
As of now, the WINIA group, which includes WINIA, WINIA AID, and WINIA Electronics, has yet to find new owners after undergoing corporate rehabilitation procedures for over a year since October 2023. WINIA and WINIA AID are seeking buyers through negotiated contracts, having presented proposals to potential investors since the public competitive bidding failed in February of last year.
Shinsegae Engineering & Construction's sale of the Eden Valley Resort has also failed twice. Initially, it attracted buyer interest with the potential for increased profitability by converting the member-operated golf course into a public one, but it is reported that they could not narrow the differences in their positions regarding the sale price. In the first bid, Shinsegae Development sought a preferential buyer at around 150 billion won but failed and shifted to a public sale. However, even after lowering the minimum bid price to around 130 billion won, they could not select a buyer.
NKMAX, which recently succeeded in selling its management rights, is an example of a case where its affiliate, NK Gen Biotech, made the acquisition. Many corporations are either undergoing corporate rehabilitation procedures or are waiting for liquidation after bankruptcy procedures have been initiated. According to court statistics, as of November last year, there were 1,745 corporations undergoing bankruptcy procedures across the nation, a 15% increase from the same period in 2023, which saw 1,509 cases.
In the financial sector, CNH, CNH Capital, and the information technology (IT) service company Jointree, which are currently in the process of selling management rights, are also increasing. Due to an economic downturn leading to a surge in rehabilitation and bankruptcy companies, there is a growing number of corporations aiming for a comeback through management rights sales, yet even the key players in the restructuring M&A market, the PEF operators, are turning their backs.
Industry sources indicate that there are no attractive corporations even if debts are alleviated. A source from a PEF operator noted, "We prefer to engage in proactive restructuring before a corporate enters rehabilitation procedures rather than invest in companies that have already entered rehabilitation. Companies in the rehabilitation process are often seen as unattractive since they have reached the point of legal management."
The declining possibility of corporate normalization in properties entering the M&A market through rehabilitation procedures is also viewed as a hindrance. In the past, large corporations would initiate aggressive expansion only to face limitations, or properties that temporarily experienced cash flow blockages due to exceptional circumstances like the COVID-19 pandemic were released into the market. Representative examples include STX Shipbuilding and Marine, acquired by UAMCO, and Pan Ocean of the Harim Group.
A source from an accounting firm responsible for consulting on the sale of distressed corporations emphasized, "Just a few years ago, even Skinfood attracted numerous financial and strategic investors in its bidding process, making the acquisition competition vibrant. Recently, however, the market has turned its back on so-called zombie corporations that lack usable assets and influence within their respective industries, leading to their release as distress sales."
The tightening of a conservative investment posture among limited partners (LPs) has also contributed to the difficulties in investing in corporate rehabilitation sale properties. A source from a restructuring fund operation house said, "KAMCO, the only anchor LP of domestic restructuring funds, allows post-investment matching that achieves minimum matching requirements for private funds after fund formation, but it is hesitant to invest in rehabilitation corporations classified as risky assets, resulting in difficulties in matching."