GPs must be selective in targeting Korea divestments – AVCJ Forum

“We expect that this year and next year many categories will undergo restructuring. Private equity investors will have a high chance to buy these assets,” said Kim Yi-dong, a partner at KPMG Korea.

Chaebol reform is not new in South Korea. Domestic conglomerates were forced to divest assets following the Asian financial crisis and the Korean credit crisis, and they have been called upon to slim their operations on numerous occasions since then. As a result, there is some concern among investors that the best assets have already gone and much of what is left might not be desirable.

“If they are selling assets now, those are really, really non-core assets, which means those might not be the most attractive assets from the financial investment point of view,” said Chulmin Lee, a managing partner at Korea-focused VIG Partners.

The motivations of corporates divesting assets must also be considered. T.J. Kono, a partner at Unison Capital, pointed to Japan’s restructuring over the last two decades as a reference for Korea’s chaebol reform. In the late 1990s and early 2000s, assorted corporates in traditional industries, such as automobiles and electronics, offloaded assets because they needed cash to survive. More recently, the focus has shifted from industrial and manufacturing assets to media and retail. The rationale is also more strategic as companies sell in order to concentrate their resources on certain sectors.

“We have to be very selective when seeking spin-off assets, especially if the seller is selling on the basis of restructuring. Often, they aren’t selling the best assets; usually, things that aren’t going so well go to market first,” Kono explained. “Moreover, there is also more corporate culture complexity when buying assets from large groups. You can’t simply think management will execute a new strategic plan because you come in and take a majority interest. They might not listen to you.”

While investors are eyeing lucrative assets held by top-tier conglomerates, mid-tier players – which don’t have strong cash flow in their existing businesses – are also trying to trim their subsidiaries. “Rather than waiting for Samsung or LG to spin off non-core assets, these second and third-tier chaebols will sell off high quality assets – this is a sweet spot people shouldn’t forget about," said Gordon Cho, head of Korea and managing director at The Rohatyn Group.

Even though chaebols are divesting non-core assets, there is still interest among conglomerates in buying businesses that can support growth in their core operating areas. This means there are also more exit opportunities for private equity, according to VIG’s Lee.

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• Topics
• North Asia
• Buyouts
• South Korea
• AVCJ Events
• The Rohatyn Group
• VIG Partners
• KPMG
• Unison Capital