AVCJ Awards 2019: Exit of the Year - Large Cap: KCF Technologies

The turning point for KCF Technologies was the launch of Tesla’s Model S in 2012. One of the best-selling electric vehicles (EVs) of all time and still the one with the longest range, it offered the first convincing evidence that plug-in cars could combine speed, distance and coolness. The knock-on effect was recognizable by a surge in demand for batteries that were lighter and more efficient – enabling EVs to go that extra mile without substantially increasing the weight or sticker price.

KCF came into this as a provider of materials for lithium-ion battery anodes. It can produce rolls of copper foil that are thinner yet maintain their chemical and physical structure – no tears, wrinkles, or blemishes – and are 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 as it allows customers to avoid downtimes and disruptions to their production processes,” says Chung Ho Park, a member at KKR.

KCF was one of two assets KKR carved out from LS Group in mid-2017 in a KRW1.1 trillion ($950 million) deal. It represented the private equity firm’s first collaboration with a Korean chaebol. 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 loss-making and required significant investment.

The turnaround in KCF’s fortunes has been dramatic. During the private equity firm’s 22-month holding period, revenue and EBITDA grew by more than 50% and 100%, respectively. KKR sold the business to a division of SK Group in June 2019 for KRW1.2 trillion, generating a gross multiple of 6.5x and a gross IRR of 175%.

The Tesla-driven recalibration of a lithium-ion battery market previously bloated by oversupply was not the only factor. After establishing the business as a stand-alone entity in terms of brand and corporate structure, KKR pumped $150 million into manufacturing facilities and struck long-term contracts with customers to bring more certainty to the order pipeline, supporting a doubling of capacity within 18 months. It also drove overseas expansion.

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 acquire a 100% stake,” says Park.

Pictured: David Katz of KKR accepts the Exit of the Year - Large Cap award

 

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