GPs busy as Korea's chaebols rightsize

It’s deal time in Korea. At least that’s the prevailing sentiment among GPs, who are seeing an increasing flow of corporate divestitures and various types of restructurings.

“There’s a feeling of urgency in the Korean corporate sector to restructure,” says Jason Shin, managing partner of Seoul-based Vogo Capital Advisors, a firm that completed two such buyouts last year. 

What’s driving this activity is new government pressure on the chaebols – the family-owned businesses that dominate the economy – to shape up.

The new administration of President Geun-hye Park, which began in early 2013, is generally pro-business. But it will not put distressed chaebols on life support like the administration of her predecessor (who was a former CEO of Hyundai’s construction division) was willing to do.

“These guys have to de-lever,” says James Yoon, partner and head of Korea at MBK Partners, which was involved in three buyouts of corporate divisions last year. “A number of the groups started selling these assets – some of which are large, profitable companies – because they need the cash. We think it will be a very active year in Korea.”


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.

Deleveraging opportunities for private equity, therefore, ought to be wide and varied. 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. 

But while divestment is the big theme, these potential deals are not necessarily about the sale of non-performing divisions, sources agreed. 

Vogo did two buyouts last year. It bought 100 percent of the Burger King fast food chain in Korea (worth 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,” he explains.

He agrees that dealflow has picked up. Vogo looked in depth at 40-50 deal opportunities last year and he expects roughly the same amount this year, he says.

Seoul-based Hahn & Co, a 2010 spinout from Morgan Stanley Private Equity Asia, 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.

Government privatisations are another potential opportunity. Woori Financial Group is one example. It has 10 subsidiaries, some quite large, that are on the block for sale, MBK’s Yoon says. Korea Development Bank is also selling portfolio companies, some of which were acquired during the Asian financial crisis in the late 1990s.

In fact, sources cite financial services – particularly securities, savings & loan and insurance – as one of the most active sectors.