Key Takeaways
- • A Financial Supervisory Service journal paper by senior investigator Han Sanghun and Cornell University Professor Rosemary Batt found no statistically significant employment decline at 144 PEF-acquired Korean companies between 2005 and 2019.
- • Employment growth at PEF-acquired companies exceeded that of more than 31,000 other companies in both the acquisition year and five years after acquisition, per the study's database comparison using KISVALUE.
- • The researchers attribute the result to South Korea's regulatory regime, which limits leveraged buyouts, dividend recapitalizations and sale-and-leaseback transactions and prohibits dismissals without just cause.
- • Fourteen bills to directly regulate PEFs are pending in the National Assembly, including a proposal to cut the borrowing limit from 400% to 200% of net assets.
- • The PEF Managers' Council voted on October 28 to dissolve and transition into the Korea Private Equity Association, targeting a January launch.
Summary
A paper published in the Financial Supervisory Service journal Financial Supervisory Research (Vol. 13, No. 2) finds no evidence of a significant employment decline at Korean companies acquired by private equity funds (PEFs). Han Sanghun, a senior investigator at the Financial Supervisory Service, and Professor Rosemary Batt of Cornell University compared employment growth at 144 companies in which PEFs held at least 50% of shares for more than three years against more than 31,000 other companies, using NICE Information Service's KISVALUE database. According to the paper, there was no statistically significant decline in employment at PEF-acquired companies at any point from 2005 to 2019, and their employment growth exceeded that of other companies in the acquisition year and five years later.
The researchers attribute this pattern to South Korea's regulatory framework, which requires transparency and reporting by PEFs and restricts aggressive financial engineering. They argue that acquisition debt must remain at the fund level, that dismissals without just cause are prohibited, and that wages and severance receive priority in bankruptcy. By contrast, the paper notes that leveraged buyouts, debt-funded dividends and sale-and-leaseback transactions are widely used in the United States, where critics link such practices to deteriorating finances and mass layoffs.
The debate has arisen amid a dispute at Osstem Implant. On October 27, MBK Partners said the company's domestic headcount rose by 444, from 2,291 at the end of 2022 to 2,735 in the first half of the current year, in response to a Metal Workers' Union claim that 368 permanent employees had left. A similar dispute over workforce reductions is ongoing at Homeplus.
Legislatively, fourteen bills amending the Financial Investment Services and Capital Markets Act are pending in the National Assembly. Proposals include lowering the borrowing limit from 400% to 200% of net assets, expanding reporting on borrowing, asset sales and dividends, and requiring notification of worker representatives on the employment impact of acquisitions. An investment banking industry source cautioned against one-sided regulation based on the "demonization of private equity funds," while acknowledging a need to reassess PEFs' role two decades after the PEF system was introduced. On October 28, the PEF Managers' Council approved dissolving itself into the Korea Private Equity Association (tentative name), which is slated to begin operations in January.
The researchers attribute this pattern to South Korea's regulatory framework, which requires transparency and reporting by PEFs and restricts aggressive financial engineering. They argue that acquisition debt must remain at the fund level, that dismissals without just cause are prohibited, and that wages and severance receive priority in bankruptcy. By contrast, the paper notes that leveraged buyouts, debt-funded dividends and sale-and-leaseback transactions are widely used in the United States, where critics link such practices to deteriorating finances and mass layoffs.
The debate has arisen amid a dispute at Osstem Implant. On October 27, MBK Partners said the company's domestic headcount rose by 444, from 2,291 at the end of 2022 to 2,735 in the first half of the current year, in response to a Metal Workers' Union claim that 368 permanent employees had left. A similar dispute over workforce reductions is ongoing at Homeplus.
Legislatively, fourteen bills amending the Financial Investment Services and Capital Markets Act are pending in the National Assembly. Proposals include lowering the borrowing limit from 400% to 200% of net assets, expanding reporting on borrowing, asset sales and dividends, and requiring notification of worker representatives on the employment impact of acquisitions. An investment banking industry source cautioned against one-sided regulation based on the "demonization of private equity funds," while acknowledging a need to reassess PEFs' role two decades after the PEF system was introduced. On October 28, the PEF Managers' Council approved dissolving itself into the Korea Private Equity Association (tentative name), which is slated to begin operations in January.
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