[Edaily Marketin Reporter YunJi Kim ] The domestic mergers and acquisitions (M&A) market in the first half of this year showed little growth in actual transactions, despite ample available capital. It is explained that while both private equity fund (PEF) managers and large corporations reviewed investment opportunities, they became more cautious about deploying capital because the price gap between sellers and buyers failed to narrow, and market conditions made exit strategies uncertain. Consequently, investors appear to be placing greater emphasis on fair acquisition prices and future exit potential rather than growth potential alone.

According to the investment banking (IB) industry on the 7th, private equity funds and strategic investors (SIs) from large corporations continued to actively seek acquisition opportunities in the first half of this year but remained cautious about actually executing investments. Although there is a significant amount of dry powder accumulated in blind funds and project funds, the threshold for investment approval has actually risen amid rising interest rates, economic uncertainty, and increased exchange rate volatility. Industry sources say that the key factor in investment decisions has shifted from the immediate acquisition price to whether the asset can be resold at a fair value in three to five years.

In the past, it was possible to boost a company’s value through post-acquisition performance improvements and bolt-on strategies, then realize returns via an IPO or strategic sale. However, there is now a growing perception that this formula no longer works as effectively as it once did. With the IPO market yet to fully recover and large corporate SIs adopting a more conservative stance toward major controlling-stake acquisitions, it has become difficult for acquirers to map out exit scenarios.

An investment banking industry official stated, “In recent investment review meetings, the question of who might buy the asset later is discussed more heavily than the acquisition price itself,” adding, “The reality is that no matter how attractive a target may be, it is difficult to proceed if the exit path is unclear.”

The fact that the secondary market is not yet sufficiently active in the domestic market is also a concern. In the U.S. and Europe, where large asset managers, secondary funds, and credit funds are well-established, there are relatively diverse exit options involving the transfer of existing investment assets to other funds or asset managers. However, in Korea, limited partners (LPs) are not very receptive to transactions where one private equity fund (PEF) acquires assets held by another PEF. It is explained that, from the perspective of institutional investors, a structure where assets are exchanged between asset managers is difficult to accept as a clear exit, and it may also lead to controversy over the appropriateness of the price.

Co-GP (co-investment), in which multiple asset managers form a consortium to share the burden of acquisition, is also not an easy alternative. Since there is not yet sufficient experience with co-investments among PE firms in Korea, it is explained that it is difficult to align the interests of asset managers regarding post-investment management involvement, additional capital injections, and exit timing. The industry view is that making joint decisions during the holding period is more difficult than raising funds at the acquisition stage.

While there are some cases where continuation funds are being used to liquidate existing assets or extend holding periods, the conditions for this are far from straightforward. While related transactions are taking place, primarily among large asset management firms, factors such as ensuring existing limited partners’ (LPs) rights of first refusal, recruiting new investors, determining fair value, and managing conflicts of interest are cited as variables affecting the success of these deals. Although continuation funds can be used as a means to extend the holding period of high-quality assets and adjust the exit timing, it is explained that it will take time for them to become a common exit alternative in the domestic private equity market.

Large conglomerates are also grappling with similar concerns. While interest in growth industries—such as AI, power infrastructure, and the semiconductor value chain—remains high, the burden of acquiring high-valuation assets at a control premium remains significant. Amid ongoing global economic uncertainty and mounting pressures from large-scale capital expenditures and R&D, there is a growing trend toward minority stake investments, joint ventures, and strategic alliances rather than full acquisitions.

The key variable in the M&A market for the second half of the year is expected to be price adjustments rather than whether transactions resume. As deals that have been in progress since the first half of the year are sequentially closed starting in the third quarter, the number and value of transactions may recover somewhat. However, many believe it is difficult to expect an overall market rebound unless sellers lower their asking prices. This is because idle funds will only be actually deployed if a price acceptable to buyers is accompanied by a clear path to return on investment.

Another source in the investment banking industry stated, “This is not so much a market where deals can’t be made because there are no assets for sale, but rather a market where there is a shortage of assets that come with both a reasonable price and a clear exit strategy,” adding, “Deals are most likely to close for assets owned by sellers who are willing to adjust their prices to market levels and for assets backed by a solid growth rationale. In particular, continuation funds will likely be indispensable.”