PE circles Korea carveouts

Korea's chaebols are rightsizing, resulting in some carveout deals.

Increasing pressure on Korea's chaebols to restructure is creating a flow of corporate divestitures and various types of restructurings, according to industry sources.

“There’s a feeling of urgency in the Korean corporate sector to restructure,” says Jason Shin, managing partner of Seoul-based Vogo Capital Advisors. 

Vogo did two such buyouts last year, acquiring the Burger King fast food chain in Korea (valued at about $100 million), a carve-out from the Doosan Group; and camera lens manufacturer Samyang Optics, which was performing well but belonged to a financially-troubled parent group, Shin says. 

“The underlying assets are sound; it’s just pressure to divest,” Shin explained.

Seoul-based Hahn & Co made a similar acquisition last year when it bought a controlling stake in beverage maker Woongjin Foods, a subsidiary of the Woongjin Group, in a deal valued at 200 billion Won ($190 billion; €138 million). 

The company was financially healthy but was sold by the Korean courts in a restructuring deal, to allow the parent company to pay down debt.

“Dealflow in Korea is quite strong,” says co-founder Scott Hahn. He expects to close more such transactions this year.

Korean industry is facing “high debt, slow growth and seemingly intractable long-term structural issues, some of them culturally oriented”, according to a study last year by AlixPartners.

The advisory firm rated 17 percent of Korean industry as “on alert” for distress and another 45 percent “on watch”. Only 37 percent was considered to be healthy.

Among the chaebols trying to shed units are Tongyang Group, which is on the brink of bankruptcy, and Hyundai Group, which announced plans to raise $3.1 billion by selling assets. In addition, government privatisations are deal opportunities. Woori Financial Group has subsidiaries on the sale block, and Korea Development Bank is selling portfolio companies.

The good news is that the momentum around carve-outs doesn’t mean corporates have stopped acquiring – even though completed trade sale exits were only $32 million in 2013, down about 25 percent year-on-year, according to Thomson Reuters data. 

Chaebols are more likely to acquire assets from private equity rather than from other chaebols, due to their highly competitive nature, says James Yoon, partner and head of Korea at MBK Partners, which was involved in three buyouts of corporate divisions last year.

“Private equity can be a neutral bridge – the matchmaker of assets from one chaebol to another, to make the industry more competitive.”

Click HERE for the full article on Korea in the March edition of Private Equity International.