South Korea’s distressed M&A market is facing a crisis, with companies under rehabilitation failing to attract buyers despite debt relief and restructuring efforts. Even private equity firms—key players in corporate recovery—are steering clear of troubled assets, citing a lack of appealing prospects.
The slowdown comes as corporate bankruptcies in South Korea surge. According to the National Court Administration, 1,745 companies were undergoing bankruptcy proceedings as of November 2024, a 15% increase from the same period in 2023. Yet, restructuring-focused M&A deals have largely stalled, leaving many firms under court-supervised rehabilitation at risk of liquidation.
Several high-profile attempts to sell rehabilitating firms have fallen flat. Tongyang Systems, Medipharmaplan, Jesco Power, and Kosdaq-listed EDGC all saw their recent bidding processes fail, with not a single buyer stepping forward. Even financial investors such as private equity funds opted to forgo existing stakes rather than bid for management rights.
WINIA Group, which includes WINIA, Winia Aid, and WINIA Electronics, has been under rehabilitation since early 2023. Despite multiple attempts at a competitive bidding process, the group has yet to secure a buyer. The group is now pursuing private contracts in hopes of attracting investors, but results remain elusive.
Eden Valley Resort, owned by Shinsegae Engineering & Construction, also failed twice to find a buyer. While the resort initially drew interest for its potential profitability as a public golf course, disagreements over price led to the collapse of negotiations. Shinsegae lowered its minimum bid from 150 billion won to 130 billion won, but no bidders emerged.
One of the rare successes in the distressed M&A market was NKMAX, which was acquired by its affiliate NKGen Biotech. However, such cases remain the exception. Most distressed companies face liquidation, underscoring the challenges in South Korea’s corporate rehabilitation system.
Experts point to the declining quality of companies entering rehabilitation as a key factor. In contrast to past cases like STX Offshore & Shipbuilding (now K Shipbuilding) and Pan Ocean, which attracted buyers due to their strategic value, today’s distressed assets are often uncompetitive and lack growth potential.
“These days, most distressed companies are so-called ‘zombie firms’ with little to no value in their industries,” said a corporate restructuring advisor at a leading accounting firm.
Private equity funds, which have historically driven restructuring efforts, are now avoiding rehabilitating firms altogether. Industry insiders say funds are more focused on preemptive restructuring—investing in companies before they enter rehabilitation.
“Companies already in rehabilitation lack appeal, as their entry into court-supervised management often signals severe underlying issues,” a private equity fund manager said.
Additionally, tightened funding requirements from limited partners (LPs) have made distressed investments riskier. Korea Asset Management Corporation (KAMCO), the primary anchor LP for restructuring funds, now requires private funds to secure matching private capital, a condition that has proven difficult to meet.
