'I can't even dream of retirement money from selling my company': Capital gains taxes stall succession M&A deals

Korea Technology Finance Corporation hosts the 2026 Business Succession M&A Bridge Forum at the Korea Federation of SMEs' K-Biz Hall in Yeouido, Seoul, on Monday. [Hong Seok-hee]

Farm operator: 'Nothing left after taxes' — owner weighs whether to sell

Second-generation manufacturer in his 60s seeks new owner: 'Someone with deeper pockets should take over'

Listing: 'About 40% of deals collapse even at final negotiation — price and terms are the biggest hurdle'

"I was hoping to sell the company and use the proceeds for retirement, but that's just a dream now. I was told that after paying capital gains tax, there's practically nothing left. The consultation I received made clear that under the current rules, you end up with very little in hand. Unless the system changes, selling the company just is not a realistic option right now."

Korea Technology Finance Corporation, known as Kibo, hosted the 2026 Business Succession M&A Bridge Forum at the Korea Federation of SMEs' K-Biz Hall in Yeouido, Seoul, on Monday. A woman identified only as A visited an on-site consultation booth held as part of the event but said she ultimately decided to keep running her business for now.

"My husband founded the agricultural corporation 10 years ago and built it up from scratch. We considered selling to prepare for retirement, but for the time being we have decided to wait a little longer," she said.

Under current rules, when shares in an unlisted small or medium-sized enterprise are sold, the capital gains tax rate for a major shareholder is 20 percent on taxable income up to 300 million won ($217,000) and 25 percent on the amount above that threshold. Adding the local income tax — levied at 10 percent of the capital gains tax — brings the effective rates to 22 percent and 27.5 percent, respectively. On a sale of 1 billion won, the seller would owe more than 270 million won in capital gains tax alone.

The number of small and medium-sized enterprises exploring third-party succession through mergers and acquisitions is growing as owners find no one to hand the business to. But voices from the field say that taxes, sale prices, employment continuity and how long the outgoing owner must stay on are all practical barriers blocking deals from closing.

The government has begun working on reforms. The Ministry of SMEs and Startups said last December it would push to enact a special law promoting SME succession through mergers and acquisitions. A planned tax revision for next year also includes a 20 percent reduction in capital gains tax on shares, equity stakes or business assets when a qualified small or medium-sized enterprise is taken over by a third party. The measure would apply to transfers completed on or after Jan. 1, 2028.

The forum was organized by the Ministry of SMEs and Startups and Kibo to connect companies seeking succession with prospective buyers and M&A intermediaries. It was the third regional event in the series, following earlier forums in Busan and Daejeon, and included M&A brokerage consultations and introductory advisory sessions.

For a manufacturer in his 60s identified only as B, succession was an equally pressing concern. A second-generation owner who inherited the manufacturing firm his father founded, B said he had poured his own savings into the company several years ago to pull it back from the brink of capital impairment. He has adult children but has no plans to pass the business on to them.

"We have stabilized the company, but growing it further will require bold investment," B said. "I thought it would be better for the company and for the employees if someone with more financial firepower took over and could really grow it." He added that even during the worst of the company's financial difficulties he had tried to sell, but struggled to get a fair valuation.

The hardest problem B identified was valuing the business. Unlike listed companies, unlisted SMEs have no comparable market price, and many rely heavily on the owner's personal sales relationships and client networks.

"The hardest part of valuing the company is estimating how much revenue the products we currently have will generate going forward," B said. "It is inherently subjective, so disagreements between buyer and seller are unavoidable."

In practice, price and terms are also the most common reason deals fall apart. Shin Yu-jin, an M&A manager at Listing, an M&A platform that participated in the forum as an adviser, said older owners looking to sell often seek a buyer outside the family because they have no intention of passing the business to their children. On the buying side, she said, many acquirers are looking to add companies through "bolt-on" acquisitions — attaching businesses that can generate synergies with their existing operations to expand market share.

The final hurdle is almost always price. "The hardest part is adjusting the price and aligning on terms, and that is where most deals break down," Shin said. "We have closed about 25 deals so far, but roughly 40 percent of the transactions that made it all the way to final negotiations still fell through."

Buyers frequently ask the outgoing owner to remain with the company for a set period, often using earn-out arrangements under which a portion of the purchase price is paid later based on post-acquisition performance. On how long sellers are typically asked to stay, Shin said: "It varies by deal, but usually somewhere between two and five years." For SMEs, the difficulty of transferring client relationships and sales know-how accumulated by the owner all at once is reflected directly in M&A contract terms.

On the other side of the table, some participants were actively looking to acquire. Park Jong-wook, chief executive of Brize, said he has completed about five acquisitions to date — including a shampoo company, wrist-support and insole brands, and a broadcast production firm. This time he is looking to scale up and is targeting companies valued in the 10 billion to 20 billion won range. Consumer goods companies with online sales potential that are generating revenue but running at a loss or with weak cash flow are also on his radar.

"We do a lot of manufacturing, production and product sales, so we mainly look at companies that have products," Park said. "We have already brought down management and advertising and marketing costs using AI, so we think we can build a profitable structure by cutting inefficiencies in the companies we acquire."

Even so, the gap between what sellers want and what buyers are willing to pay was evident here too. "There have been cases where we stopped because the acquisition price did not work out, and others where the actual internal data looked very different from what we expected based on the products alone," Park said.

Biotech venture Onkovix is also searching for new investors and a buyer. Kim Seong-eun, chief executive of Onkovix, said the company has struggled to raise follow-on funding since receiving its last bridge investment in 2024. The company currently has six employees, including Kim. Last year's sales came to about 250 million won, and projected sales for this year are about 400 million won. Kim said she has drawn on her own retirement savings to keep the company running.

"I want the drugs I am developing to reach patients and help them," Kim said, adding that she wants any acquirer to continue drug development after the handover. She said she could not accept a deal that would redirect the company toward sales or marketing businesses unrelated to drug development.

She has also experienced a deal collapsing at the last moment. Kim said negotiations with one company last year fell apart over price just as a deal appeared imminent. She is currently in discussions with two or three other firms.

The government this year launched a business-succession M&A matching system and has been expanding consulting, business valuation and matching support for both buyers and sellers. To prevent news of a pending sale from leaking — which could trigger employee departures or unsettle clients — the system also allows companies to circulate anonymized profiles with sensitive details and company names redacted.

Lee Sang-chang, a Kibo executive director, said business succession M&A is "an important tool for preserving the technology and management expertise that SMEs have built up and for strengthening their long-term viability." He added that Kibo would continue expanding its regional forum series to spread awareness of available information and support programs, and would work with specialist organizations to help succession M&A deals proceed smoothly.

hong@heraldcorp.com