VIG makes partial exit from Korea funeral services business

VIG said the sale price represented 40% growth from its time of acquisition. The investor bought 100% of Preed last year for an undisclosed sum via its fourth fund, which closed at about $850 million in late 2019 and makes control investments in mid-market companies with enterprise valuations of $70-500 million.

Mastern is a real assets-focused PE arm of Mastern Investment Management, a real estate manager with assets under management of KRW20 trillion. Despite rising cremation rates, real estate strategies can factor prominently in funeral services plays, especially in terms of venues for wakes and urn depositories known as columbaria.

VIG’s acquisition of Preed was structured as a merger with Joun Life, an existing funeral services portfolio company in the firm’s third fund. At the time, Preed was touted as the first domestic player in this space to achieve a value of more than KRW1 trillion. Its plan was to build up to KRW5 trillion in assets, KRW500 billion in annual sales, and five million customers by 2022.

The combination of Preed and Joun is part of an ambitious consolidation play, which has also included the acquisitions of funeral industry players Kumkang Mutual Aid in 2016 and Modern Sangjo for in 2019. These transactions were reportedly worth KRW6 billion and KRW10 billion, respectively. 

VIG acquired an 86% stake in Joun, alternately known as Good Sangjo, in 2016 for KRW85 billion. This was said to be the first-ever private equity investment in Korea's funeral services industry.

The combined Preed-Joun entity had 10 physical funeral homes nationwide as of December 2020 and plans to add one new location to the fleet every year. Market share at that time was about 22%, both in terms of the number of subscribers to the company’s insurance-style pre-need funeral services products and the payments received from those subscribers.

The company now claims to be the leading operator in this space with 1.6 million active subscribers, KRW1.4 trillion in cumulative pre-need deposits, KRW1.7 trillion in total assets, and KRW900 billion in investment assets as of June. This equates to roughly tenfold growth compared to the scope of Joun as a standalone business in 2016.

Concurrent with the partial exit of Preed, VIG refinanced about KRW150 billion of debt for recapitalization. Consequently, it expects to recoup most of its initial investment in Joun.

“Since VIG's investment in 2016, when the domestic funeral service industry itself was undervalued, we have transformed Joun Life and then Preed Life into an unparalleled total life care service provider,” Changhoon Shin, a partner at VIG, said in a statement.

“We are pleased to invite Mastern as our strategic partner during this important stage of growth to further enhance the company's asset management expertise, and we fully expect to further optimize remarkable synergies going forward. We plan to contemplate a full exit once Preed Life fully realizes such synergies.”

Funeral services are seen as a growth market in Korea related to the decreasing size of the average family, which translates into less capacity to coordinate traditional ceremonies.

These ceremonies can involve three days of catered wakes and burial rituals costing up to $10,000. Social distancing restrictions for COVID-19 are said to have had a negative impact on this model, however, particularly in terms of food services.

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• Topics
• North Asia
• Support services
• Real estate
• Exits
• Open market
• South Korea
• VIG Partners