Q&A: Vogo Investment's Jason Shin

Q: South Korea is seen as a comparatively transparent and user-friendly market for public equities investors. Why is the perception different for private equity?

A: When you have blue chip stocks routinely owned 50-60% by foreign investors you've got to be somewhat transparent. The difference is that a company like Shinhan Financial has up to 60% foreign ownership but the corporate owners don't feel threatened by these portfolio investors - they don't take an activist role and they don't meddle in the corporate governance aggressively. It's seen as relatively safe money. With private equity, you have one guy, one firm who is going to come in as your partner. They figure that the foreign PE guys are going to be much more difficult to live with.

Q: Does a stigma remain from the bank buyouts completed by foreign PE firms in the wake of the Korean credit crisis?

A: It has been 10 years since the Lone Star, Carlyle and Newbridge bank deals. Corporate owners' views on private equity have matured and it is now seen as an integral part of the economy. When certain assets go up for sale - Woongjin Coway is a recent example - everyone automatically expects some of the better known PE names to participate in the auction. We are at a point where private equity is seen as a legitimate player.

Q: So in what conditions would a Korean company conclude that a foreign PE firm is difficult to live with?

A: The foreign versus domestic issue is more important in non-control deals. In those situations, it makes a big difference because the corporate owners tend to be afraid of foreign shareholders for a number of reasons - cultural differences, language differences, expectation differences in terms of management and governance. They feel like they are in bed with someone they can't understand, so they tend to prefer domestic guys who they can really talk to. One exception would be if the owner wants an equity partner that can provide an overseas network and help him expand his business into other parts of Asia.

Q: Vogo bought the Burger King Korea franchise last September. Did this come about from building up a relationship with the seller?

A: The reason we were able to get exclusivity on that deal was because we knew the seller, Doosan Group, well and they trust us - we don't have someone sitting in the overseas office who can veto what has been negotiated. I have known the Doosan people for many years and worked with them on previous acquisitions. We went in and said, "We know you are trying to sell; we'll do it confidentially and very fast. There won't be any rumors in the market." They were also confident we could get approval from Burger King's headquarters, so they gave us exclusivity and we got it done within three months.

Q: Why was Doosan looking to sell?

A: If you go back 15 years, Doosan was primarily a food and beverage conglomerate. Their assets included Oriental Brewery, Coca-Cola Korea, a prepackaged food business and some restaurant chains. The company decided to shift its focus in the late 1990s and early 2000s. This was just after the IMF crisis in Korea and domestic consumption had nosedived. It sold Oriental Brewery and Coca-Cola Korea, used the proceeds to pay down debt and refocused its core business on something more reliable in the long term - heavy industry. Doosan has been making acquisitions in that space for the past 15 years and only two assets remained on the food and beverage side, Burger King and KFC.

Q: Divestments by Korean conglomerates are often highlighted as a potential source of strong deal flow for PE investors. Is this potential being realized?

A: It's not as active as it should be. Korean conglomerates' asset sales are driven primarily by need, such as a shift in management focus. Fortunately for us, in the past couple of years certain conglomerates have continued to be distressed and this led to deals such as our investment in Tongyang Life Insurance. We will continue to see these assets coming on sale. One encouraging sign is that some conglomerates out there are preemptively selling before they become distressed, unlike before the global financial crisis.

Q: A lot of domestic PE firms raise capital on a project-specific basis rather than investing through traditional blind pools. To what extent are you competing with these GPs?

A: There have been quite a few project-specific funds. This is because Korean LPs are much more ready and willing to commit capital if a project is identified. The problem with these funds is that it would be difficult to go to a seller like Doosan, promise to do a deal quickly and confidentially, and then turn around and say you have to raise money for it. As a result, they do a lot of public auction deals. A GP gets a commitment from a bunch of pension funds to provide capital on certain terms if the GP succeeds in acquiring the asset. Usually, however, if you don't have the money in your pocket, you don't get exclusivity.

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

• Topics
• North Asia
• Buyouts
• Buyout
• South Korea
• Vogo Investment
• GPs
• Jason Shin
• buyout