PE investors target Korean corporate carve-outs - AVCJ Forum

"Everyone hears about the 6-7 families that control 60-70% of GDP but beneath that tier there is a substantial effort focused on core assets," Andrew Shinn, managing director and head of Korea at PAG, told the AVCJ Korea forum. "We are having conversations about where they want to allocate capital in their portfolio businesses and what they want to do because they cannot add value anymore."

This dynamic has already translated into some opportunities for private equity, although opinion is divided within the industry as to whether this constitutes a meaningful amount and indeed whether it can increase. IMM Private Equity has agreed two carve-outs in the past 12 months, including a KRW1.1 trillion ($1 billion) deal for Hyundai Merchant Marine's liquefied natural gas (LNG) business.

"There are some very smart people in these companies' strategy and M&A departments," said Joseph Lee, partner and senior managing director at IMM. "They are looking at each business from an ROE (return on equity) perspective. They want to exit the low ROE businesses and focus on their core areas and compete with global players."

Samsung is already globally competitive and is under no pressure - voluntary or involuntary - to divest assets to private equity. But Lee suggested that the company achieved its current status in part by offloading businesses that were deemed non-core. Samsung has in the past owned and sold a coffee and bakery operation, a defense subsidiary and a business primary engaged in supplying stationery.

"All these businesses have been sold and the proceeds distributed to shareholders or plowed back into the core business," Lee said. However, he did note that such assets should be treated with caution by would-be private equity buyers: some businesses are highly dependent on orders from affiliates and therefore struggle to survive as independents.

Chulmin Lee, managing partner at Vogo Investment - which previously bought the Korea Burger King franchise from Doosan Group - added that confidentiality is key to securing carve-outs. "You have to make it as private as possible," he said. "If it gets to the public market then employees become destabilized and customers could be moving in some way."

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• Topics
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