PE firms seek partnerships with Korean corporates - AVCJ Forum

"The chaebols are prepared to pay higher prices, they have better access to low-cost local borrowing, and they can easily provide incentives from their business portfolios," said Taigon Kim, senior partner and head of Korea at Headland Capital Partners. "I don't think financial investors should try to compete on price with the chaebols. They should compete in other ways or try to cooperate with the chaebols."

The test case for this approach remains Fila and Titlist. The Italian sportswear company was bought by its Korean franchisee in 2007, which proceeded to snap up Acushnet, owner of the Titlist golf equipment brand four years later, supported by Mirae Asset Private Equity, the National Pension Service of Korea (NPS) and Korea Development Bank.

NPS subsequently formalized a structure through which corporates and private equity could invest alongside each other with the creation of the Corporate Partnership Program. The pension fund contributes half the capital and 12 large Korean conglomerates put up the rest. Private equity participants are said to include MBK Partners, H&Q Asia Pacific, IMM Private Equity and Mirae Asset Private Equity.

"Last year we invested with GS Group via a corporate partnership structure," said Joseph Lee, partner and senior managing director at IMM. "It was a water desalinization business in Spain. GS had always been interested in these assets and when the European crisis hit they were able to take a controlling stake in a company."

While potentially lucrative, these partnerships only work if conflicts are properly addressed. "If a chaebol wants you to help it expand by acquiring overseas assets, the value might be accrued at corporate level at home, not in the subsidiary," noted Peter Whang, managing partner, Joshua Tree Asia Investments. "Chaebols also have longer strategic objectives than private equity investors."

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