[Edaily Marketin Soyoung Park Reporter] As the number of small- and mid-sized firms and start-ups grows, competition for deals is intensifying. Compounded by corporate succession issues, small deals are emerging as a new investment opportunity. Recently, a strategy has emerged in the market where investors directly acquire small and medium-sized companies, then drive operational efficiency and artificial intelligence transformation (AX) to increase corporate value. The acquisition-startup and search fund models—which connect companies facing succession issues with management talent—are also gaining attention as new ways to identify small deals.

According to the domestic investment banking (IB) industry on the 14th, domestic private equity fund (PEF) managers and venture capital (VC) firms are focusing on small deals and are concretizing their investment strategies—ranging from operational improvements and AI transformation (AX) to acquisition-based startups and search funds.

A prime example is the domestic VC firm Murex Partners. Its PE team—the M&A team—is pursuing a strategy of directly acquiring small and medium-sized enterprises (SMEs) and then increasing their corporate value through operational improvements and asset-based financing (AX).

For example, Murex acquired a golf course solutions company that counts half of South Korea’s approximately 500 golf courses as clients. The company had sought to expand from a B2B-based business model into B2C but faced about two years of trial and error. Murex helped the portfolio company restructure its pricing policies, sales KPIs, and cost structure, turning an operating loss into a profit within a year.

The industry does not view small deals as advantageous simply because their valuation is low. The smaller the company, the more likely it is to harbor untapped inefficiencies in areas such as management, organization, and pricing policies. When an investment firm steps in to address these issues directly, there is significant potential to increase corporate value.

Recently, there has been a trend of combining such operational improvements with AX. In particular, for small and medium-sized software companies with outdated systems and development teams, there is potential for PE firms to directly lead AX initiatives after acquisition to boost productivity. It is also possible to expand beyond simply implementing AX at a single company to an “AI roll-up” strategy, applying the technology and know-how to other companies.

A Murex official explained, “After acquiring a software company with strong market share and recurring revenue in a specific industry, we can streamline operations using AI,” adding, “With the cash and know-how generated from this, we can pursue a ‘roll-up’ strategy to acquire additional similar companies.”

The global market has already reached a stage where software buyout firms are internalizing their operational capabilities. A significant number of firms are pursuing a strategy of repeatedly acquiring specific companies, enhancing their value, and then selling them. However, since this strategy has not yet become mainstream in Korea, there is a view that it has the potential to grow into a new niche market.

Efforts to transform the very approach to finding small deals are also continuing. Representative examples include “acquisition-based entrepreneurship” and “search funds.” Acquisition-based entrepreneurship is a startup model in which an entrepreneur acquires an existing company—rather than building a product from scratch—and enhances its value by applying their own experience and management skills. A search fund, on the other hand, is an investment model in which an individual receives funding from investors to identify potential acquisition targets; once a company is found, the individual raises additional acquisition capital and manages the company directly.

The domestic private equity firm Architect Equity established Architect Ventures to apply this model to the Korean market. Through Architect Ventures, the firm is preparing a model that combines acquisition-based entrepreneurship with an accelerator program. Drawing on examples from Japan, Architect Ventures is launching an accelerator program in Korea. The firm is considering a plan to invest search funds in the form of pre-seed funding to participants who wish to conduct actual searches after the program and to collaborate with them in the company search process.

Park Je-hong, CEO of Architect Equity, stated, “The program run by Architect Ventures will not end with mere training; it will be operated in a way that supports promising talent by providing search funds so they can directly identify companies to acquire.”

There is speculation that, in this process, regional small and medium-sized enterprises (SMEs) facing business succession issues could emerge as new investment targets for small deals. An official in the investment banking industry noted, “In Japan, search funds are gaining attention as there is a growing awareness that the disappearance of local companies due to a lack of successors could lead to job losses and the decline of local communities.” The official added, “In Korea as well, there are many companies struggling to find successors, and for those that also own real estate, transactions are often difficult due to differing price expectations between sellers and buyers. Therefore, acquisition-based startups and search funds could establish themselves as viable alternatives.”