Korea’s VIG eyes global exit routes after closing fourth fund

Economic concerns have prompted strategic buyers to become more frugal, paving the way for a greater number of secondary buyouts, according to managing partner Chulmin Lee.

VIG Partners, a Korean mid-market firm, is looking to global buyers as an important exit route after raising the country’s eighth-largest private equity fund.

The Seoul-headquartered firm collected 950 billion Korean won ($810 million; €730 million) for VIG Partners Fund IV, according to a statement. The vehicle closed in December above its 850 billion won target and below its 1 trillion won hard-cap, managing partner Chulmin Lee told Private Equity International.

VIG’s close follows a heady year for Korean private equity. Spending had reached $9.8 billion as of September and was on track to exceed the decade-high $11.3 billion spent in 2015, according to advisory firm BDA. Exit values hit $14 billion last year, an annual record and up 81 percent over the 2013-17 average, according to Bain & Co.

Still, analysts have pointed to a number of potential recession indicators in South Korea, with the nation’s central bank warning in October of weaker economic growth as a global downturn weighed on exports. Lee said this had contributed to diminished appetite from corporate buyers.

“Deployment is strong because company owners are very active in divesting their non-core assets,” he said.

“The only issue is with exits. Strategics have to be as frugal as possible because of the potential downturn – it’s not the time to go on a shopping spree. Global funds are very active in Korea, so secondary buyouts will be a very popular exit strategy from now on.”

Just one of VIG’s nine exits has been via a secondary buyer. It sold its controlling stake in Burger King’s Korea business to pan-Asian firm Affinity Equity Partners in 2016. VIG has completed two partial exits via initial public offerings – full exits via listing are prohibited in Korea – and the remainder were via trade buyers.

Exits to trade buyers in Korea plummeted to $1.65 billion across 32 transactions last year, down from $6.9 billion across 42 deals in 2018, according to S&P Global Market Intelligence.

The value of secondary buyout deals in South Korea almost doubled to $445 million across nine transactions last year, compared with $255 million over eight transactions in 2018. This figure does not include Blackstone’s acquisition of a stake in pharmaceutical wholesaler Geo-Young from Anchor Equity Partners for a reported 1.1 trillion won in April, as the sum was not publicly disclosed.

Howard Lee, a Seoul-based managing director at BDA, told PEI in September: “It’s now almost impossible to run a sale process without giving consideration to international global firms.

“We’ve seen auctions where nine out of the 10 bidders were private equity firms. They’re attractive because they tend to pay high multiples.”

Fund IV, which was first reported by PEI in 2018, will target nine to 11 portfolio companies, compared with seven in each of its two predecessors, VIG’s Lee said. Fund II, a $350 million 2012-vintage, has exited five investments at a 1.75x distributed-to-paid-in multiple and 28 percent gross internal rate of return.