25 October 2023
Paul DiGiacomo on China M&A, South Korean PE market
Below is a translated transcript from a recent interview by Kim Nam-kyun from Seoul Economic Daily with Paul DiGiacomo, Head of Financial Sponsors Group at BDA Partners
“Considering the immense size and dynamics of the Chinese market, it is anticipated that the Chinese M&A market will rebound as early as next year,” stated Paul DiGiacomo, the Financial Sponsors Group Head of BDA Partners, during a meeting with the Seoul Economic Daily at the Conrad Centennial Hotel in Singapore on the 15th of October.
Previously, the escalating tensions stemming from the trade disputes between the United States and China spilled over into the financial sector, and the high-intensity containment policies implemented in response to the COVID-19 pandemic dealt a severe blow to the Chinese investment market. According to Bloomberg, from the end of 2021 to June of this year, foreign investment totaling US$18.8bn (approximately KRW253tn) exited the Chinese stock and bond markets.
DiGiacomo remarked, “It is a fact that geopolitical factors, such as the U.S.-China tensions, have heightened investor caution regarding regulatory uncertainties.” However, he added, “China still remains the second-largest market in the world.”
He further conveyed, “I met with a private equity fund (PEF) operator in Hong Kong last week, who stated that they had not completed a single deal in the past 22 months, but recently decided to invest in a Chinese company. This is a positive signal that things are poised to improve distinctly in 2024 compared to 2022 and 2023.”
Mr. DiGiacomo also discussed the growing interest from sovereign wealth funds in the Middle East towards investments in Asian PEs. He mentioned, “Even when considering international political factors, sovereign wealth funds from the Middle East are among the few groups eager to channel capital into the Chinese market,” adding, “Chinese based General partners (GPs) are also showing significant interest in collaborating with oil money.”
Regarding the South Korean PE market, Mr. DiGiacomo evaluated the market, stating, “While the absolute size of PEF assets under management (AUM) in South Korea may be relatively small, the growth has been substantial, increasing sevenfold since 2012 and more than threefold since 2017.” According to the Financial Supervisory Service, last year, the total committed amount for institution-specific PEFs reached KRW125.3tr, marking an 8.4% increase compared to the previous year. He pointed out cases like SK On attracting investments in unitary terms from global asset management firms like BlackRock and Chinese investment firm Hillhouse Capital, saying, “Overseas investors are showing interest in South Korea’s advanced industries such as chemicals, information technology (IT), finance, with a particular focus on the electric vehicle battery sector.”
In light of the prolonged global high-interest rate environment causing difficulties in capital raising for the PE market, Mr. DiGiacomo suggested that ‘continuation funds (new funds reinvesting in previously held assets)’ could serve as an alternative. He explained, “From the perspective of GPs, extending the fund’s lifespan is a mean to maximize investment value, while limited partners (LPs) of the existing fund can choose to extend the maturity of their existing commitments or sell at market prices, offering an opportunity for both GPs and LPs to make choices.”
Since its establishment in 1996, the global M&A advisory firm BDA Partners has specialized in providing advisory services for investment banking deals in the Asian region. Uniquely, the company has established offices in seven Asian cities, including Seoul, Tokyo, Shanghai, Hong Kong, Ho Chi Minh City, Singapore, and Mumbai, staffed with industry professionals. Mr. DiGiacomo, the company’s Head of Financial Sponsors Group as well as Managing Partner, explained, “Since 2020, we have provided advisory services for over 100 transactions, with more than 80 of them being M&A deals in the Asian region. Additionally, approximately 70% of these transactions were related to PEFs.”
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