The government on the 24th announced plans to build a foundation to boost business succession in response to the rapid aging of small and midsize business managers. The Ministry of SMEs and Startups (MSS) said at an economic ministers' meeting that it will push to enact the Special Act on Promoting Succession of Small and Midsize corporations through mergers and acquisitions (M&A).
Small and midsize corporations with managers aged 60 or older account for one-third of the total. A considerable number of small and midsize corporations are estimated to have no successors due to the absence of children or reluctance to take over. The number of manufacturing small and midsize corporations with uncertain continuity due to a lack of successors has exceeded 56,000, and 83% of them are estimated to be located outside Seoul. If these corporations fail to secure succession and close down, there are concerns that the regional economic base will weaken.
The Ministry of SMEs and Startups (MSS) will establish a legal basis to support succession of small and midsize corporations through M&A. Currently, there is no legal basis for the concept of small and midsize business succession and related support. The MSS will define M&A-type succession of small and midsize corporations and push to enact a special act that comprehensively stipulates the foundations of support policy, including manager age and management period.
It will also build an integrated policy framework for overall business succession by transferring and specifying business succession support provisions from the existing Small and Medium Enterprises Promotion Act into the special act. The special act will include a basis to designate and operate public and private institutions and organizations with expertise in M&A and small and midsize business support policy as a Business Succession Support Center (tentative name). After the special act is enacted and implemented, the MSS plans to promote programs through the support center such as identifying succession demand, consulting on succession strategies, and providing support for funds, guarantees, and education.
The Ministry of SMEs and Startups (MSS) will also build a support system to foster a reliable business succession M&A market. The M&A market has significant information asymmetry, and it is difficult for individual corporations or investors to grasp buy and sell demand information for small and midsize corporations. In addition, if information that a particular corporation is pursuing an M&A becomes public, there are concerns about key personnel leaving and deterioration in transaction relationships.
The Ministry of SMEs and Startups (MSS) will also build a business succession M&A platform to address these issues. It will screen for genuine demand for business succession and provide services that match corporations wishing to buy and sell. The platform will be pilot-built in the first half of next year through the Korea Technology Finance Corporation (KOTEC) and will begin service in the second half. The special act will also establish a basis for operating a registration system for business succession M&A intermediaries.
The Ministry of SMEs and Startups (MSS) will also create an institutional environment suitable for business succession M&A. To pursue M&A, corporations must comply with a series of procedures required by the Commercial Act, such as notices of shareholders' meetings, but uniformly applying these procedural standards to the M&A of unlisted small and midsize corporations, which have relatively small numbers of shareholders and smaller scales, can cause inefficiencies such as procedural delays.
Accordingly, for M&A aimed at small and midsize business succession, the MSS plans to introduce special provisions in the special act to ease Commercial Act procedures. It will also establish a basis in the special act to stably operate expense support programs for consulting, corporate valuation, and due diligence necessary for M&A for business succession.
Minister Han Seong-sook of the Ministry of SMEs and Startups (MSS) said, "Even after managers retire, the continued operation of small and midsize corporations is not an issue at the level of individual corporations but a national urgent task to maintain the regional economy and manufacturing base," and added, "We will work with the National Assembly to promote the enactment of the special act and, beyond legislation, closely cooperate with relevant ministries to identify and implement policies."