When MBK Partners sealed its $6 billion purchase of Tesco’s South Korean unit Homeplus last year it was the latest sign of private equity’s success in tapping into the country’s growing consumer class.
The deal came as Tokyo-headquartered Unison Capital picked up a 60 percent stake in bubble tea chain Gong Cha, Morgan Stanley Private Equity took control of Korean restaurant franchise Nolboo, and Seoul-based IMM Private Equity acquired Hollys Coffee in Korea’s fiercely competitive coffee house industry.
In the e-commerce space, KKR and Korea-focused firm Anchor Equity Partners have acquired a controlling stake in Groupon’s Ticket Monster, while Softbank and BlackRock Private Equity have participated in online retailer Coupang’s big-ticket funding rounds.
PE firms have been seizing opportunities in consumer-driven sectors as increasingly wealthy and urbanised South Koreans look for a home for their newly disposable income.
According to the Bank of Korea, disposable personal income averaged 466.2 trillion won ($401.9 billion; €353.8 billion) from 1970 until 2015, reaching an all-time high of 1,560 trillion won last year. Its lowest recorded figure was 2.8 billion won in 1970.
With GDP per capita approaching $32,000, according to the World Bank, Korea is no longer an emerging market but a mature economy primed for private equity, says Steve An, who heads Hamilton Lane’s Seoul office.
South Koreans today are shopping for value and convenience: they are finicky and sophisticated, adds Gordon Cho, head of Korea for The Rohatyn Group. And they are not shy expressing their views. “Information and customer feedback is much faster in Korea because everyone is online. If something is good it will go; if something is not good, people will know right away,” says Cho.
The country’s consumers are well-informed and tech-savvy. Korea has the world’s best IT infrastructure and gets bragging rights for the highest mobile social penetration in Asia-Pacific. A survey by Embrain shows that 80 percent of customers check reviews before making a purchase, and 74 percent said they had written product reviews.
Jason Shin, a managing partner at mid-market Korean firm VIG Partners, agrees that rising affluence in South Korea means that consumers want convenience and demand better experiences. In April, VIG had invested 27 billion won in parking management company HiParking, after seeing increased market demand for car parking in downtown Seoul. This was two months after the firm booked a 2.5x return when it sold its stake in Burger King’s local franchise to Affinity Equity Partners.
Shin says the firm is also looking to invest in a consumer service for ageing South Koreans.
The government has also championed deregulation in the private equity and M&A markets in order to encourage corporate takeovers and fund investments.
“South Korea has now become an export nation on all aspects, from semiconductors to cell phones to media and entertainment companies. However, Korea’s consumer sector has much more potential to grow as an export engine,” says Cho.
By 2021, the International Monetary Fund expects GDP per capita in South Korea to reach $40,000. Expect private equity firms to continue to ride this trend.