Asia Awards: PE Professional of the Year - Michael Kim

Q: MBK reached a final close of $2.7 billion on Fund III very quickly, despite a difficult market. What helped you?

A: We reached the hard cap in less than a year, and it was a revised hard cap. Three factors worked in our favor. First, a differentiated strategy: we do buyouts only, for the most part, and in North Asia only. Of our 21 investments, 19 have been for control and all of them have been in China, Japan or Korea. Second, we have a stable team: five of our six partners have been investing together for over 14 years. Third, track record: LPs seek consistent, high IRRs and now that every major GP is on Fund III or IV there is a substantial and meaty track record to point to. We had a high re-up rate - 80% of our LPs also invested in Fund II. There is a group of LPs who have been with us from the beginning and they have been central to our franchise.

Q: Do you feel the market is bifurcating? A few GPs can raise large sums at short order, while others are struggling...

A: I do think there is a flight to quality. It is a natural evolution at this stage in the development of private equity in Asia. Twelve years ago it was the Asian financial crisis and everyone made a bunch of money. Nine years ago people were raising funds on an idea. Now the thesis that you can make money investing in private equity in Asia has been proved and LPs are looking for the winners. The advantage will increasingly go to local GPs. I don't just mean Korean GPs in Korea or Japanese GPs in Japan, but also global players that are able to fully execute on localization. They will have the best deal flow; they will have the most constructive dialogue with sellers, intermediaries and regulators; and they will know all the potential buyers on the exit side.

Q: In which markets will you be most active?

A: Our target allocation is 40% Korea, 30% China, 30% Japan. Given the relative sizes of these economies, it is a bit unusual in that Korea is our largest target market but as a buyout market it is more dynamic. For the last 10 years Japan has been a bit like Microsoft whereas Korea is like Google. Having said that, I think Japan is changing thanks to Abenomics. It has been a boon to the economy in general but it has also been a disruptive force: corporates that would typically not be sellers are thinking of selling and corporates or financials who would not be aggressive buyers are looking to buy. The question is will Abenomics be sustainable or is this a window of opportunity?

Q: Why is Korea so dynamic?

A: It has to do with the corporate landscape. The chaebols dominate Korea and as they go through a change in ownership, the second and third generation owners - who are Western-trained - are learning to focus on their core businesses. They want to expand horizontally, meaning overseas, rather than vertically, meaning into related industries. As they sell out of non-core businesses while being acquisitive in core areas, they are becoming a dominant source of deal flow for us but also our takeout. The other factor driving deal flow is the privatization of government-owned businesses.

Q: MBK has completed four large deals this year: Coway, NEPA and ING Life in Korea, plus Komeda Coffee in Japan. ING Life was a competitive process - what was the clinching factor?

A: We are almost unique in having both requirements for this deal. We are a domestically registered GP, and by that I mean for a non-industry player to gain control you had to be domestic and this knocked out all the big global sponsors. And it was a $1.7 billion deal so you need to able to write a big equity check, and of the local players, we are it.

Q: Komeda was a secondary buyout. Do you expect to see more of these?

A: There will be some secondaries in the deal flow. Again, it is a natural part of the evolution of private equity in Asia and a function of there being too much financial sponsor capital in the marketplace. But we don't think this is a major trend and we don't think it can be tied to the challenging exit market. The capital markets in China have slowed down, but Korea is up slightly and in Japan the Nikkei has risen 65% in the last 12 months. The buoyancy in Japan is facilitating capital market exits; we are working on one right now. However, we have made seven exits and most of them have been trade sales - these are preferable because you get out at one shot and you get a control premium. The third leg is leveraged re-cap dividends and they remain a viable source of exits in Japan and Korea.

Q: How has the trade buyer universe evolved?

A: Seven years ago it was dominated by global players, but today you see a much larger Asian strategic presence and one of the most important trends we are seeing is the emergence of North Asian buyers. Chinese and Korean companies will look at a Japanese business, and the Korean and Japanese companies will look at a Chinese business.

Q: Presumably they are also competitors for deals...

A: The chaebols are our most important deal source as well as our most important exit destination in Korea. They are also in some instances our most formidable competitors. They are sophisticated - they know we can be on the same side of the table one day and on the other side the next day.

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• Topics
• North Asia
• Greater China
• Buyouts
• Fundraising
• MBK Partners
• China
• Japan
• South Korea
• Fundraising
• buyout
• AVCJ Awards