Q&A: VIG Partners' Jason Shin

Q: What particular themes do you see in PE investment in Korea?

A: Recently, many GPs have been looking at the domestic consumption space. In the early days of Korean private equity firms, from 2005 to around 2010, it was mostly about export-related or industrial companies. That was the first instinct because Korea is such an export-oriented, industrial-focused economy. But as GPs have matured, ourselves included, the domestic consumption space has become a much bigger focus and there have been some significant success stories.

Q: What about the types of business being targeted?

A: In the early days activity was mostly focused on chaebol groups, but in the last 3-4 years people have been looking at family-owned or founder-led businesses. The majority of these companies were set up in the 1980s, so the founders are reaching their 70s and 80s and need to retire. Not all of them have clear succession structures. But the succession planning angle was there even 10 years ago. I think what's changed is that 10 years ago people didn't really know what to make of private equity firms. As they were trying to figure it out the Lone Star fiasco happened and suddenly all the newspapers started portraying private equity managers as evil and not to be trusted. Now if you pick up a newspaper private equity is portrayed as an integral part of the economy. Not only are these founders aware of who we are, but they actually see us as pretty good corporate citizens.

Q: Would this also apply to financial services, given the past controversies involving private equity?

A: I would define it more narrowly - it was the banks. No matter what the market, banks always seem to bring out an emotional response from the public because they are seen as special types of institutions. We have invested in insurance and credit card companies and people didn't care so much. But are there still sub-sectors in financial services that are still attractive? Following the shake-up of the securities firms, the only area that remains to be consolidated is asset management and we are not sure whether there is an interesting target left in the space.

Q: Taking HiParking - a recent investment by VIG - as an example, how was this deal sourced?

A: It goes back to our Fund I days. HiParking came to see us in 2006 when its fourth year and still at the venture stage, so we couldn't invest. For Fund II we focused domestic consumption and we looked at what was missing in Seoul compared to cities like Hong Kong, Singapore, New York and Tokyo. One thing that jumped out at us was parking businesses; it was still at an early stage of growth even though the city was at a relatively late stage of growth. We found that HiParking was still one of the top four companies - two of the others are foreign players - and so we went back to them. The parking business is a secondary asset for the owner so he was willing to part with management control as long as he had some upside with us. We find that an increasing number of entrepreneurs are willing to stay on as minority investors.

Q: If you are seeing more deals involving founder-entrepreneurs, what does this mean for chaebol opportunities?

A: Every year, there are always a few chaebol groups getting into trouble because of financial or competitive difficulties, so we see pretty decent deal flow in that area. The problem is oftentimes the bigger chaebol assets come out of auctions and for us that is not so interesting. If it's a $200 million deal, we usually talk to them directly and confidentially because we have a pre-existing relationship with most of chaebol groups and for assets of that size there are unlikely to be auctions. Entrepreneurs also prefer private and confidential negotiations because they don't want to be in the public spotlight and get questions from employees, vendors and creditors as to why they are thinking of selling out. Confidentiality is important and it works to our benefit.

Q: To what extent to you expect to see more competition for deals from local securities firms?

A: They recently went through a huge consolidation and are now better capitalized than ever before. Securities firms were always allowed to do private equity, but they are starting to look at it more keenly. There is particular interest in mezzanine - we are getting a lot of approaches from them looking for mezzanine, senior financing or straight equity co-investment. So they have the capital and the willingness to deploy it, but they don't necessarily want to spend a lot of money bringing in top talent. They are not sure whether they could recruit teams of GPs into organizations dominated by salary men. They don't know how that is going to fit into their culture. It is more noise than reality at this point.

Q: Last year VIG sold Tongyang Life Insurance to Anbang Insurance Group for $1 billion. What does this say about the appetite for Korea-based assets?

A: If you have a quality asset, there is no lack of buyers, especially if it a mid-sized asset, which means $500 million or less. Once you venture into $1 billion-plus territory there aren't many groups in Korea that can write that kind of check. My advice to anyone selling a life insurance company is to look at strategic buyers, and the Chinese are probably the only potentially aggressive buyers left in this sector. Ten years ago it was all about selling to US and European financial institutions but the world has changed since then; US and European players were so weakened by the global financial crisis and the need to strengthen their capital bases that they can't look at anything outside of their own jurisdictions.

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• Topics
• North Asia
• GPs
• South Korea
• VIG Partners