Share price swings trap listed-company M&A in a structural dilemma

The valuation gap between sellers and buyers driven by share price volatility has long been a persistent challenge in the listed-company M&A market. But as short-term swings have grown increasingly severe, what was once a chronic headache has become a decisive variable capable of derailing deals altogether.

According to investment banking industry sources, growing volatility in stock prices and the market capitalizations of listed companies is causing a rising number of M&A transactions to stall or be restructured. When share prices fall, sellers push back negotiations by demanding a reassessment of fair corporate value. When prices rise, the financing burden on acquirers grows heavy enough to make deals difficult to pursue.

MNC Solution is a prime example. The defense components specialist drew attention as one of the biggest deals in the M&A market in the first half of this year, but negotiations between its largest shareholders — a consortium of Socius Private Equity and Welltoo Investment — and the private equity arm of Korea Investment Partners over the sale of a controlling stake ultimately collapsed. The market capitalization stood at around 1 trillion won ($707 million) when Korea Investment Partners was named the preferred bidder in March. It then plunged amid a broader market downturn, and the two sides were unable to bridge their valuation differences.

The reverse situation — a share price rising too sharply to allow a controlling-stake sale — has also emerged. In such cases, private equity fund managers facing fund maturities have sought a way out through block deals rather than waiting indefinitely for prices to stabilize.

That is the same logic behind Crescendo Equity Partners, the largest shareholder of semiconductor equipment maker HPSP, pivoting from a full stake sale to a block deal. HPSP's share price soared on the back of the AI boom and strong earnings, pushing its valuation into the 3 trillion won range and making it difficult for potential buyers to commit to an acquisition. Crescendo responded earlier this year by selling roughly 10 percent of its stake in successive block deals. The strategy appears designed to reduce the deal size by selling in tranches while lowering the controlling shareholder's stake, easing the entry barrier for a potential acquirer down the road.

Shipbuilding parts maker Hyundai Hyms is another case where deal structure was reshaped by share price volatility. When Hyundai Hyms' share price surged on the back of a shipbuilding boom, its largest shareholder JN PE executed a block deal to ease the price burden on potential buyers and recoup its investment ahead of schedule.

Industry insiders say that whenever share price volatility intensifies, M&A involving listed companies inevitably falls into a structural dilemma.

When share prices plunge, sellers withdraw or delay deals. Transferring a stake at a depressed market price — regardless of the company's intrinsic value — unavoidably erodes exit returns. Buyers, meanwhile, struggle to persuade their limited partners to pay a premium well above the market price to meet the seller's expectations. A falling share price also reduces the collateral value of the target stake, sometimes making it impossible to secure the financing needed to close a deal.

The dilemma persists even when share prices surge. From the seller's perspective, a rapidly expanding market capitalization shrinks the pool of buyers capable of acquiring a controlling stake in a single transaction. Buyers face the financial burden of raising an outsized acquisition sum amid concerns about overvaluation, and risk being accused by limited partners of wasting money if the share price corrects afterward.

This is, in a sense, the inescapable condition of listed companies, which face the market's verdict every day. Unlike private companies, listed firms have a transparent, publicly traded price that is reset continuously. That exposed market price serves as the reference point for negotiations while simultaneously acting as a structural constraint that ties the hands of both sides.

"More than the simple direction of share price movement, it is the magnitude of volatility that determines whether a deal gets done," an industry official said. "In a market environment as turbulent as this one, every listed-company M&A deal will keep going through the pain of finding a valuation that both sides can accept."

an@heraldcorp.com