Corporate Restructuring Purges Capital Market
Korea in general has been hostile to mergers and acquisition (M&A)s and corporate restructuring. Newspapers often reported in sensational tone how buyout companies, mostly foreign, snatched local businesses from their owners. Kang Sung-doo, president and CEO of Golden Bridge Investment & Securities, however, doesn't agree. The former labor activist says M&A and restructuring purges the capital market and contributes to society. Golden Bridge is rising as a very strong player in the M&A and corporate restructuring market here.
``I think M&A, whether hostile or friendly, is a good business model. It purges the capital market. Management is not something that has to always be protected,'' Kang said in an interview with The Korea Times.
He stressed that hostile M&A doesn't mean taking over a management that is doing well. Management is often corrupt, ineffective, and they thus undermine the shareholders' assets. They sometimes end up wasting taxpayers' money as the government has to fund them to avoid bankruptcies.
``Businesses also have a social responsibility. When they go bankrupt, they have a huge negative effect on society. They end up squandering social funds, which include money from depositors and small sum investors,'' the CEO explained. It successfully completed M&A and restructuring on a number of mid-tier companies, greatly enhancing their corporate value.
Golden Bridge Financial Group has been a strong player in corporate restructuring and the M&A sector. The group started as a corporate restructuring company a decade ago after the Asian financial crisis, and grew by acquiring, restructuring and selling firms. The group's financial subsidiaries, including capital, asset management, and securities companies, were obtained through a series of non-hostile M&A. It recently acquired a mutual savings bank as well.
Golden Bridge Capital, for example, dates back to Ssangyong Capital, an auto financing subsidiary of the now defunct Ssangyong Group. The company was ailing so much that Golden Bridge paid only 1 won for the acquisition, taking over its assets as well as debts.
``The firm was used to set up a slush fund for the Ssangyong Group. It was also used to make irrational and immoral investments. As these cases piled up, the whole company became corrupt and idle,'' Kang explained.
Art of Corporate Restructuring
The Ssangyong Capital case shows the art of corporate restructuring after acquisition. ``The first thing you should do in restructuring is stop doing the irrational and ineffective things I mentioned. People who are responsible for the wrongs should be made to quit, and those not involved should stay. I would say half of the restructuring is already done with this.''
Ssangyong Capital, which had not recorded a surplus since its foundation, turned a profit after only one and a half years since the acquisition by Golden Bridge. It sold the auto-financing sector for 35 billion won four years after the acquisition. ``There lies the charm of corporate restructuring and M&A,'' Kang said.
The securities subsidiary was not an exception. The first thing Golden Bridge did after acquiring it was to move it to a new office building, in saving 2.5 billion won in rent.
``The first thing you do is not fire people, but put management back on the right track,'' he said.
The negative impression on corporate restructuring here is mostly due to the perception that a lot of people will be laid off. Golden Bridge, however, hasn't laid off any employees.
``We regard corporate restructuring as a kind of socially responsible investment. We don't do damage to the social good. We resuscitate the dying company and hire more people than before,'' he said.
For example, when Golden Bridge acquired the asset management company, it had less than 10 staff members. Now, it has 40 people after the successfully resuscitation of the firm that was suffering from capital erosion. It even started paying corporate taxes from last year.
He compared the restructuring business to a junk dealer. ``The financial business looks nice and decent, but dirty jobs like restructuring make more money. There is the chance of buying cheap and selling expensive. It's dangerous, dirty, and difficult compared with other financial businesses, but it is thus attractive.''
Looking Into Niche Market
Kang said ``how to survive, sustain, or develop'' has always been question for small securities companies. He thinks small players can't win in a mass market where facilities matter. In brokerages, for example, the number of branches determines a lot.
``There are, meanwhile, things that you wouldn't do because you are too big. Big players, for example, wouldn't jump for a deal that returns only tens of millions of won in commission,'' he said.
He added that not all companies are big like Samsung Electronics. ``A small company in Guro Digital Complex with around 50 employees, for example, also needs funding. There could be thousands of such companies. We can target small and medium cap businesses as our customers.''
Kang said specialization is very important. Golden Bridge is looking for opportunities in overseas markets. ``To increase bulk, the domestic market is not big enough no matter how good you are. You should expand market to global sphere. I think there will be especially many opportunities in emerging markets.''
Golden Bridge, which acquired a securities company in Vietnam, has an especially positive outlook there.
``Vietnam has huge potential to successfully transform into an industrialized country. It has a good location and enough population to form a good domestic market. It is politically stable and people are eager to learn. Vietnam is highly likely to be like Korea, marking a huge growth in short period of time.''
He said Golden Bridge, which had a head start and seeks complete localization, is in better position there where the capital market is now blossoming. He said their business model is competitive in Vietnam that is expected to see a lot of M&A.
Another niche market opened up by Golden Bridge is listing the U.S. businesses on the Seoul bourse. It recently signed a contract with New Pride Corporation, a U.S. complex logistics company run by a Korean immigrant, to lead listing of the firm on the Kosdaq during the latter half of the year, which will make it the first North American company listed there.
Kang explained that when Korea Exchange, the country's stock market operator, first opened the door to foreign companies for globalization, good and transparent companies weren't much interested in the Korean bourse.
``We pondered over where to look for good, transparent companies, which would be interested in the Korean stock market. We concluded that U.S. businesses run by Korean immigrants would fit.''
They were strong mid-tier companies, but they weren't likely to get much attention on the Nasdaq. The Seoul bourse was an attractive option for them. Golden Bridge's presentation in Los Angeles last December was a success. ``We had the idea before others and worked on it for long time. It was fruitful,'' Kang said. ``Opportunity is everywhere, but not everyone takes it,'' he added.
Kang said people in the financial industry shouldn't stick to the old customs to dig up new ideas.
Golden Bridge hence emphasizes quick and effective decision making ― it runs an electric approval system in the company and top management doesn't hide anything from its employees. All members can see what's going on. It also adopted mobile office system. Even the group chairman doesn't have his own office.
Kang said the competitive edge of a financial company comes from human resources. ``The financial industry is a human business, and good people have good philosophy and culture. The key of M&A and restructuring is in philosophy. They should believe it is the right thing, the right business, and do it in the right way.'' He said work can be more meaningful than simply making money when one believes that he or she is doing the right thing. ``It could help create jobs, pay taxes, and make more donations. Then there will be a virtuous circle.''