Singapore’s family offices increasingly interested in investments in Korea

South Korean startups aim to ride on the boom.

Rebellions Inc., an AI chip designer, set a goal of increasing its total addressable market (TAM) to more than $150 billion in 2027.

K-BEAUTY

Among consumer sectors, the South Korean beauty sector is one of the brightest spots for investors, Seoul-based private equity firm VIG Partners said.

The country’s cosmetics export volume ranked No. 3 in the world last year, following France and the US, and the overseas sales are expected to surpass those of the US this year, VIG said, citing the Korea Cosmetic Industry Institute.

“Domestic cosmetics players are sustaining growth as their export volumes expand across a diverse range of countries,’ said VIG CEO Chulmin Lee.

South Korea’s cosmetics exports increased 15.4% to $8.5 billion by value in January-September, a record high for such a period, according to customs data.

That highlights how K-beauty has evolved into a global consumer phenomenon, driven by innovative product design, digital marketing and the halo of Korean pop culture, industry sources said.

BOLT-ON, CARVE-OUT

South Korea is offering investment opportunities for bolt-on acquisitions and corporate carve-out deals, private equity firms said.

A bolt-on acquisition is a strategic purchase of a smaller company that is complementary to an existing business. A carve-out deal is a partial divestiture where a parent company separates a business unit to sell a portion of its equity.

Affirma Capital, a Singapore-based buyout firm, expanded its foothold in the South Korean mergers and acquisitions sector through its successful bolt-on strategy.

Affirma said bolt-on acquisitions within the same industry in  the country can effectively lower blended entry multiples.

Accelerating retirement among baby-boomer small and medium-sized enterprise founders in South Korea and the country’s high inheritance tax regime are also driving a structural shift toward divestment over family succession, Affirma said.

South Korea’s inheritance tax rate is 50%, the second highest among Organization for Economic Co-operation and Development (OECD) member countries, following Japan with 55%.

GOVERNANCE CHANGE, LIQUIDITY

The South Korean tax system frustrated corporate funders about how to transform their companies within their families, causing family feuds and disputes with third parties, said Samuel Kim, a partner of Affinity Equity Partner.

Those issues, along with spin-offs, a change in corporate governance, created opportunities for the private equity industry, he said.

In addition to the opportunities, the South Korean private equity market has ample liquidity, which allows quick exits, said Joseph Lee, head of IMM PE’s head of global growth.

“One thing that I would point out is the liquidity of the Korean private equity market and we are able to get capital back to our investors in a pretty set period of time,” Lee said during a panel discussion.

REAL ESTATE

The South Korean real estate sector is likely to attract foreign investors as the central bank is likely to cut interest rates and the won currency remains weak, property market experts said.

The Bank of Korea last week kept policy interest rates unchanged, given the overheating housing market and a declining currency, but left the door open for another cut, pushing the won down even further.

“Korean assets are relatively attractive to cross-border investors, benefiting from favorable entry valuations due to the weaker Korean currency won and lower hedging premium,” said Samsung SRA Asset Management Global CIO Jae Yeon Kim.

Foreign investors are growing more interested in commercial real estate sectors beyond office and logistics, such as data centers, rental housing and hotels, according to Samsung.

Savills saw the outlook for office, logistics, hotel and data center sectors as bright.

Write to Jongwoo Cheon at jwcheon@hankyung.com
 
Jennifer Nicholson-Breen edited this article.