[Korean Law Insights] Mergers & Acquisitions for Entering the Korean Market
- K-Law Consulting_Administration
- Feb 16, 2024
- 3 min read
Updated: Feb 25
[Published on February 13, 2024 edition of the "Korean Law Insights" column in the Korea Daily’s Economic Expert Section]
Stable and swift market entry possible
Attention required for foreign investment reporting and regulations
In a previous column, we discussed establishing a company in Korea. Besides setting up a new company, another way to enter the Korean market is by leveraging an existing company in Korea. Specifically, businesses can engage in the Korean market by entering into business contracts with existing Korean companies or through mergers and acquisitions (M&A), such as establishing a joint venture with a Korean company.
If a company is established in Korea without prior business experience in the country, everything must be built from scratch. While this approach allows the company to reap all the benefits, pioneering an unfamiliar market can be inefficient and carries a high risk of failure. On the other hand, leveraging an existing Korean company provides the advantage of utilizing its human and material resources to enter the market immediately. This approach minimizes uncertainty and risk, enabling a stable and swift market entry.
Among the various ways to leverage an existing Korean company, a broad definition of M&A includes not only establishing a joint venture, as mentioned earlier, but also several other approaches. The specific type of M&A, commonly referred to as "mergers and acquisitions," depends on what is being acquired or merged. These types include stock purchases (acquiring company shares from existing shareholders), new share acquisitions (purchasing newly issued shares directly from the company), business or asset transfers (acquiring existing business operations or assets from a company), and mergers (combining two companies into one).
When determining the type of M&A and establishing the specific transaction structure, it is essential to consider a structure that (1) complies with the law, (2) minimizes costs (including expenses and taxes), and (3) effectively achieves the transaction’s objectives. Based on my experience, proceeding with an M&A without thoroughly reviewing these factors can lead to significant costs and losses if the process needs to be reversed. Therefore, it is crucial to seek guidance from legal and tax experts in both Korea and the U.S. to determine the appropriate M&A type and structure.
Another crucial aspect of minimizing M&A costs and potential losses is identifying and preparing for risks not only in the transaction itself but also in post-M&A operations. A successful M&A can lead to business expansion, economies of scale, enhanced competitiveness, and synergies. However, failing to properly identify and mitigate risks associated with the transaction can result in worse outcomes than not pursuing the M&A at all. To address these risks, it is essential to conduct legal and tax due diligence, eliminate or account for potential risks in the pricing, and establish predefined solutions for any issues that may arise in the future.
Finally, when conducting an M&A with an existing Korean company, special attention must be given to foreign investment reporting requirements and compliance with Korea’s unique regulations. Preparing the necessary documents for foreign investment reporting is not a simple process and can take a considerable amount of time, so it is important to factor this into the overall timeline. Additionally, identifying and preparing for any specific regulatory requirements associated with foreign investment in advance is crucial to ensuring a smooth transaction.
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Jin Hee Lee/K-Law Consulting Korean Attorney
[Reference link in original Korean]
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