Deal focus: Autoplus primed as industry consolidator

CarMax is the company Autoplus wants to become. With $15.1 billion in sales last year, CarMax is the leading retailer of used cars in the US, as well as one of the largest operators of wholesale vehicle auctions and providers of used vehicle financing. It is the definitive big fish, facing competition from approximately 18,000 franchised used car retailers and twice as many independent dealers.

VIG Partners envisages Autoplus driving a similar consolidation effort in Korea. "Korea's used car market is worth $20 billion a year but $19 billion of that is in the hands of mom-and-pop players," says Jason Shin, managing partner at VIG. "Like other, more developed markets – whether it's the US, Japan or Australia – the industry is heading towards larger players taking a much bigger share."

The private equity firm has agreed to acquire 100% of Autoplus for KRW110 billion ($97 million). Of this, KRW60 billion will be used to take out shares held by the founder and management, although the former, Deuk-Myung Kim, will re-invest part of his proceeds into VIG's acquisition vehicle and stay on as CEO. The new equity will go towards strengthening sales channels and establishing a more recognized brand, with a view to building on revenues that came to KRW190 billion last year.

Autoplus started out in 2000 as an on-site maintenance provider but has since evolved into a smaller version of CarMax with solutions that cover every aspect of car ownership, from sale to acquisition financing to maintenance services to refurbishment of vehicles for re-sale. However, the two companies are at different points of the competitive spectrum.

CarMax is a clear market leader, accounting for 5% of the 22 million used cars aged 0-10 years sold in the US in 2015, and around 3% of the 41 million sold overall. The leader in Korea is SK Encar, a unit of domestic conglomerate SK Group. Around 5% of the 3.78 million used cars sold in the country in 2016 are said to have passed through its network, which comprises 30 offices and agencies as well as an online presence; the company claims to sell more than 100,000 a year through its website.

SK Encar is one of three companies that dominate the Korean used car market, alongside Autoplus and AJ Sellcar, which is controlled by another conglomerate, AJ Group. Autoplus plans to develop its online coverage, but much of VIG's capital will go towards adding to the existing six showrooms.

The company has greater capabilities than SK Encar in terms of repair, maintenance and refurbishment and it wants to make these count, replicating the model of one of its existing Seoul sites, which not only exhibits vehicles, but also serves as a refurbishment plant where prospective customers can actually see the mechanics at work. "That helps to build trust," says Shin. "We think there could be one of these centers in each of the top five metropolitan areas."

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• Topics
• North Asia
• Buyouts
• Consumer
• South Korea
• VIG Partners
• automobiles