Will Samsung Electronics Unlock Its Treasury After 8 Years? Potential for Mega M&A

[Korea Financial Times, Kim JaeHun] Samsung Electronics has set its sights on mergers and acquisitions (M&A) as a strategy to secure future growth engines. Since the acquisition of its automotive electronics subsidiary Harman in 2017, the company has not engaged in any megaton-scale deals, leading to expectations that proactive M&A activities will bolster its future competitiveness.​

In fact, Samsung Electronics is making swift moves, such as reorganizing its structure to search for the 'post-Harman,' demonstrating its commitment to this strategy. Despite deteriorating performance, the company has secured ample funds through asset liquidation efforts, drawing attention to potential M&A outcomes this year.​

According to Samsung Electronics' business report, as of the end of last year, the company's retained earnings stood at approximately KRW146 trillion, the largest in its history. Retained earnings refer to the portion of net income that remains within the company after dividends and facility investments. This fund is used for growth and reinvestment, serving as an indicator of a company's cash management capability.​
However, the fact that retained earnings have reached an all-time high can also be interpreted as the company not effectively utilizing the accumulated funds. Although Samsung Electronics made record-high R&D (research and development) expenditures and facility investments last year to enhance business competitiveness, it faced criticism for being relatively passive in the M&A market, a direct approach to securing future growth drivers.​

At the end of last year, Samsung Electronics' current assets were approximately KRW 227 trillion, the highest in the past three years. Among these, cash and cash equivalents, which can be immediately utilized, amounted to about KRW 53 trillion, indicating sufficient funds for M&A activities.​

The last large-scale M&A executed by Samsung Electronics was the acquisition of Harman International Industries in 2017. At that time, Samsung invested approximately KRW 9.2 trillion, marking the largest overseas M&A by a Korean company. Harman has since become a new cash cow for Samsung, recording an operating profit exceeding KRW1 trillion in 2023 and achieving its highest-ever performance last year with an operating profit of KRW 1.3076 trillion.​

In addition, Samsung Electronics established an ecosystem combining the Internet of Things and home appliances through the acquisition of 'SmartThings' in 2014 and accelerated its 'Home AI' strategy this year. The company also launched 'Samsung Pay' through the acquisition of 'LoopPay' in 2015.​

After Harman, Samsung Electronics continued its M&A activities by acquiring AI startup 'Sonio' through its subsidiary Samsung Medison in May last year. In July, it acquired British tech startup 'Oxford Semantic Technologies,' and in December, it increased its stake in domestic robot company Rainbow Robotics, making it a subsidiary. However, none of these deals matched the scale of Harman.​

Large-scale M&A not only secures future growth engines but also demonstrates a solid financial structure, significantly impacting performance and stock prices. At Samsung Electronics' regular shareholders' meeting on the 19th of last month, shareholders voiced concerns about the lack of large-scale M&A activities since Harman.​

Samsung Electronics stated, "We have been continuously pursuing M&A to secure future growth engines, but unfortunately, we have not achieved significant results." The company added, "This year, we will strive to achieve meaningful M&A in areas such as AI, semiconductors, robotics, meditech, and HVAC, and deliver visible results."​

With Samsung Electronics declaring its intention to achieve tangible M&A results this year, attention is focused on the status of companies recently rumored to be acquisition targets.​
The most recent acquisition rumor involves domestic aesthetic medical device company 'Classys.' Founded in 2007 by dermatologist Jung Sung-jae, Classys has attracted attention in the M&A market with its medical device 'Shrinking,' which uses ultrasound energy to enhance skin elasticity on areas such as eyebrows, face, abdomen, and thighs. Samsung Electronics has denied the acquisition rumors, stating they are "groundless."​

Beyond Classys, there is also interest in the potential acquisition of Germany's Continental AG's automotive electronics division, which Samsung Electronics was reportedly pursuing last year. Given Harman's strengths in in-car audio and digital cockpits, acquiring Continental's automotive electronics division, which specializes in advanced driver-assistance systems (ADAS), could create synergies. However, there have been no updates on this matter for over a year.​

Internally, Samsung Electronics is making swift moves, having recently elevated the 'New Business Task Force (TF)' established under the DX division for future business development to the 'New Business Team' after three years. While the New Business TF was responsible for basic planning for M&A and future business development, its elevation to a formal team suggests a more active pursuit of M&A.​

A Samsung Electronics representative stated, "We have been continuously preparing for M&A to discover future growth engines," but added, "It is difficult to confirm the exact status of these efforts."

Kim JaeHun (rlqm93@fntimes.com)