The global market for mergers and acquisitions has been hampered – as firms strive to assess what future market conditions will demand, M&A activity on the whole has been low. Globally, mergers and acquisitions this quarter have slumped to a level unseen since the aftermath of the financial crisis amid concern the economic recovery is waning. Citigroup (NYSE: C) now sees that changing, at least in the Korean market. If the assessment is correct, it will reverse a troubling trend for the world’s banks, which have saw investment banking and merger and acquisitions revenue plummet from previous plateaus.
Acquisitions by South Korean companies are set to rebound as much as 30 percent in the next year, from a seven-year low this year, as a stronger won and improved earnings drive overseas purchases, according to Citigroup Inc. “While South Korean companies are becoming more active in cross-border transactions, they haven’t been aggressive enough,” said Jangho Park, head of Korean investment banking at Citigroup, the country’s top M&A adviser. “Deal volumes will be explosive in two to three years as they learn from trial and error.” The Koran Won has been strong lately, and is Asia’s best performing currency against the dollar over the past year. This strength could fuel Korean companies’ appetite for takeovers after the value of U.S. and European targets has declined, Park said in an interview. South Korean takeover announcements have dropped to $38.5 billion this year, compared with $39.8 billion for the same period a year earlier, according to data compiled by Bloomberg. Deals involving the country’s companies tallied $53.3 billion for all of last year, the data show.
Resuming sales of state-owned assets and political pressure to break up large industrial groups will help spur mergers and acquisitions domestically next year, Park said. “Big conglomerates want to streamline their businesses and improve their core efficiency,” he said. “Public criticism over excessive expansion would also be a factor in deciding to sell assets.” Should mergers and acquisitions begin growing again, it would provide a welcomed boost to revenues for the world’s investment banks. The lack of deal has created a punishing revenue climate, one which has caused mass layoffs and shifting market focus. Companies worldwide have announced $446 billion of takeovers since June 30, the smallest amount since the third quarter of 2009, according to data compiled by Bloomberg. A change in this would be welcome, and may be a predecessor for a stronger economic rebound.
