Deal focus: Affinity to close JobKorea’s technology gap

Australia-listed online recruitment business Seek divides its post-IPO evolution into three stages: initial growth in Australia and New Zealand; international expansion through M&A, including acquisitions throughout Asia; and, from roughly 2014 onwards, investment in product development and technology. From 2005, the company’s stock has outperformed the ASX 200 Index sevenfold.

Seek, which claims around 250 million job candidates and one million employers in its various networks and posted A$1.5 billion ($1.1 billion) in revenue last year, leverages data analytics and artificial intelligence (AI) to match jobs and job seekers more efficiently. It has also built up exposure to online education and HR software-as-a-service (SaaS) through early-stage investments.

Affinity Equity Partners assessed the product offerings of multiple online recruitment platforms when constructing an investment thesis for JobKorea. The GP felt that the Korean business trailed some of its international peers, according to a source close to the situation. Australia, where Seek enjoys a position of dominance, is cited as an example.

“There was a very clear idea of what could be done post-investment to increase the value, revenue, and margins, and make it stickier with customers,” the source says. “There is a lot more potential in terms of functionality and value-added services around digitalization and intelligent recommendations, using AI and analytics.”

Affinity recently entered into a definitive agreement to buy JobKorea for an enterprise valuation of KRW850-900 billion ($750-795 million), which equates to an earnings multiple of around 16x. The private equity firm emerged victorious from a competitive process that also featured MBK Partners, CVC Capital Partners, and TPG Capital in the latter stages.

The seller is H&Q Korea, which bought a 49.9% stake in the business from Monster Worldwide for $90 million in 2013. Two years later, the firm paid another $85 million and took its interest to 100%. JobKorea experienced difficulties under Monster’s ownership, but revenue and EBITDA have risen steadily in recent years, reaching KRW105 billion and KRW48 billion, respectively, in 2019.

Seek takes data generated from recruitment activity and uses it to build scalable tools like role requirement questionnaires that help hirers identify and sort candidates. Pushing these innovations from Australia into the Asian market is a priority, but the challenges associated with doing this – as well as low average revenue per user compared to local rivals – contributed to Seek’s recent decision to sell control of Zhaopin, its China business, to a local private equity firm.

While JobKorea may also represent an uphill task, the company is well positioned from a competitive standpoint. It and second-placed Saramin HR are comfortably the largest players in Korea. Saramin has a market capitalization of KRW375 billion and trades at an EBITDA multiple of less than 10x. The company generated KRW68 billion in revenue in 2019.

The timing of the sale was fortuitous for H&Q, coming against a backdrop of frenzied interest in Korean internet assets. Local e-commerce platform Coupang, which has yet to achieve profitability, listed in the US in early March and achieved a market capitalization of $75 billion. However, unlike investors in Coupang, Affinity has control.

“There are few opportunities like this in Asia where you can get a majority stake in an internet business. Most of the positions available are minority,” the source adds. “If you’re paying 16x for control and 12x for minority, that’s the control premium.”

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• Topics
• North Asia
• Buyouts
• Support services
• South Korea
• Affinity Equity Partners
• professional services