Fund focus: Korea’s midcap buyout space comes into focus

Korea’s slow-burner of an economy has not presented international investors with many exciting new reasons to allocate capital to local managers in recent years, but they are allocating anyway. Part of this is due to a general rise in pressure to deploy globally. Part of it is more immediate.

Mid-market private equity firm VIG Partners is helping prove this point with its fourth Korean fund, which has closed at $810 million, up from $600 million in the previous vintage. The growth has been primarily driven by an influx of foreign LPs, which accounted for 50% of commitments versus 30% in Fund III. They were encouraged by a healthy string of exits from the Seoul-based investor in recent years. 

While the new fund is certainly an endorsement of VIG as a firm, it’s perhaps, more importantly, an endorsement of the target market. Korea’s PE scene has seen buyout activity scale into ever-larger deal sizes, while companies in the $200-400 million valuation range continue to rely mostly on minority growth investments. Compelling evidence of midcap control as a viable strategy will doubtlessly fuel more global LP interest in the medium term – and maybe something more.

“This could kick off a rise in the creation of new domestic GPs looking at mid-market buyout,” says Jason Shin, a managing partner at VIG. “We’ve would have more than a decade headstart on them, but investors in Korea are waking up to the fact that this is a very attractive market. In the mid-market, they’ve always thought of PE as just passive minority growth investors, but now that we’ve validated this space, that’s probably going to change.”

Any proliferation in local mid-market buyout shops will continue to be connected to the global LP community in the foreseeable future since most of Korea’s smaller financial institutions are still too uncomfortable with PE as an asset class to take that leap. VIG has no such investors in its latest vehicle. Korean contributions to Fund IV came only from the most sophisticated domestic players, including the National Pension Service of Korea and Korea Teachers Pension. 

For VIG, mounting attention from overseas is already translating into meaningful impacts. Along with an increased fund size and therefore increased check size, the firm is enjoying more optionality around co-investment. Most recently, this support helped the firm realize a hospitality carve-out from conglomerate Hanwha that will be bolted on to a Fund III restaurant operator called Winplus.

The only investment so far from Fund IV is English language education player D.Share, which was valued at around $300 million. That deal size would have been the extent of VIG’s reach with previous funds, but as confidence in Korea’s mid-market buyout space grows, so will the possibilities. 

“The additional firepower from co-investment definitely gives us greater flexibility and opens up a greater number of potential targets,” says Shin. “We are currently looking at a few opportunities that are up to $500 million valuation mark, which is now easily in our comfort zone.”

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• Topics
• North Asia
• Fundraising
• Buyout
• GPs
• South Korea
• VIG Partners