Deal focus: KKR drives KCF ahead of schedule

KKR expected to triple the production capacity of KCF Technologies over the standard four-year holding period. The Korean copper foils producer was the smaller of two assets carved out from LS Group two years ago in a KRW1.1 trillion ($950 million) deal. LS was still interested in LS Automotive, a components manufacturer, and became the senior partner in a joint venture with KKR. But it was happy to sell 100% of KCF, which was until recently loss-making and required significant investment.

KKR soon realized there was more to the business than met the eye. KCF was at a tipping point. Rising electric vehicle (EV) usage meant increased demand in a lithium-ion battery market once bloated by oversupply. KCF provides materials for the battery anodes. The PE firm pumped $150 million into manufacturing facilities and entered into long-term contracts to bring more certainty to the order pipeline, and capacity doubled within 18 months.

Working well ahead of its previous schedule, KCF required more capital to drive growth. KKR turned to the public markets, seeking out pre-IPO investors whose entry would give the company a new valuation mark with a view to listing later in the year. “SK Group initially showed interest as a minority investor, but as it learned more about the business, it recognized a big opportunity that aligned with its broader EV value chain strategy, and decided to buy the whole thing,” says a source close to the deal.

The KRW1.2 trillion sale represents a first exit for KKR’s third pan-Asian fund, which closed in mid-2017. It also reflects the transformation that has taken place within KCF. At the time of acquisition, the company’s EBITDA was around $40 million, compared to $80 million for LS Automotive. EBITDA is expected to nearly double this year and rise by 40% next year.

Various factors have contributed to the rise of EVs, but the most significant from KCF’s perspective might be the launch of the Tesla Model S in 2012, which has become one of the best-selling EVs of all time and remains the one with the longest range. Batteries had to become lighter and more efficient, ideally without a dramatic surge in costs.

KCF was able to produce rolls of copper foil that were thinner yet maintained their chemical and physical structure – no tears, wrinkles, or blemishes – and were more than 30 kilometers in length. “These rolls weigh several tons. A 30 km roll makes more of an impact on production efficiency than a 10 km roll because you don’t have to change it out as frequently,” the source explains.

The LS carve-out was KKR’s first collaboration with a Korean chaebol. The boldness and speed of the KCF expansion underlines what can be achieved when an asset is operated independently of a parent juggling multiple priorities. “It would have been easy to focus on cost controls, and the business would probably have been fine,” the source adds. “But there was a real opportunity to focus on growth.”   

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• Topics
• North Asia
• Trade sale
• Industrials
• South Korea
• KKR
• manufacturing
• automobiles