Deal focus: Lock & Lock primed for regional expansion

The launch of its signature four-sided locking food container in 1998 established Korea’s Lock & Lock as a global player. The company now exports its kitchen household goods to 119 countries and has 87 directly-owned stores overseas. However, recent years have not been kind. Sales in China, which account for about 40% of aggregate revenue declined in 2014 and 2015, forcing Lock & Lock to embark on a challenging overhaul.

First, the company stopped supplying Chinese hypermarkets directly and opted to use agents instead. Revenue fell but margins remained strong because inventory risk was removed: if a hypermarket didn’t sell products, it returned them to the agent rather than the manufacturer. Lock & Lock also abandoned unprofitable TV home-shopping channels in favor of e-commerce platforms and launched a B2B service that enabled clients to source products wholesale for use in promotional activities.

Political tensions between China and South Korea haven’t helped, but the strong performance of Lock & Lock’s online business means it hasn’t struggled as much as other Korean brands, according to a source familiar with the company. The founders are now relying on Affinity Equity Partners to take the company to the next level in terms of new growth opportunities and improved management systems.

The transaction is worth KRW629.3 billion ($562 million), valuing the business at KRW990 million. CEO Jun-il Kim will transfer 29 million shares – a 52.79% equity interest – to Affinity for KRW18, 000 apiece. The GP is buying a further 5.93 million shares, or 10.77%, from Chang-ho Kim for the same price. Jun-il Kim is expected to reinvest in the business once the deal closes and remain involved in its management in some capacity.

Affinity will continue Lock & Lock’s focus on online distribution channels, but there are also plans to open additional offline stores, including smaller format outlets as well as the flagship stores that exist at present. Beyond China and Korea, management has set its sights on expansion in Southeast Asia. Vietnam, which is already a production base for Lock & Lock, is seen as an important end-user market.

“Vietnam is a different story to China – it is entering the modern trade space, with growth in hypermarkets, department stores and shopping malls really just getting started,” says the source. “The company has good relationships with modern retailers so it can target offline channels as well as online sales.”

Through developing a diversified product portfolio and a strong overseas sales network, the hope is that Lock & Lock can become an attractive acquisition target for global brands such as WMF Group and World Kitchen. “The plan is to turn the company into a formidable player in Southeast Asia and China, so that global players will be attracted to it when they want to expand into these markets,” the source adds. “In Korea, there are already some global brands keen on buying it.”

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• Topics
• North Asia
• Consumer
• Buyouts
• South Korea
• Affinity Equity Partners