Deal focus: IMM sees structural change in home decor

Korea’s population has held relatively steady over the past decade, hovering around 50 million, but it is becoming more widely distributed. To a large extent, this reflects a breakdown in the traditional family unit where multiple generations live under the same roof. There were around 21,000 households in 2019, up 20% on the 2010 figure. Meanwhile, the proportion of single-person households surpassed 30% last year, twice the 2010 level.

This is the phenomenon IMM Private Equity sees driving sales at Hanssem, Korea’s largest furniture retail and interior design hybrid. COVID-19 has been a boon for the home improvement industry globally, but structural and societal change is the key driver in Korea.

“There is a new wave of home furnishing and decoration demand from the younger generation who are living independently of their parents. And with people marrying later, they are spending more years as one-person households. The demographic trends are strong,” says Joseph Lee, a partner and CIO at IMM. “At the same time, as the cost of housing increases, the amount spent on renovation and rejuvenation becomes lower, relatively speaking.”

Hanssem was established in 1970 and it has been publicly listed since 2002. The company is unique in its positioning (straddling furniture retail and interior design, while most rivals focus on just one) and large for its industry (revenue reached KRW2.1 trillion – $1.8 billion – in 2020, while net profit was KRW66.8 billion). There was also a succession planning conundrum: Chang-geol Cho, the founder and honorary chairman, is in his 80s and has daughters who were not expected to take control of the business.

These characteristics make Hanssem a prime target for private equity. IMM had been tracking the company for five years before making its approach via a private dialogue. “We thought we could continue to pursue the vision [Cho] had and contribute new ideas and growth engines,” says Lee. “We spent a lot of time talking about our ideas for the business, and that’s how he got comfortable with us.”

IMM has agreed to take out a 30% position held by Cho and his family. There is also a significant treasury share allocation that would give the private equity firm a voting interest of 40%. Confirmatory due diligence is still underway, so a final price has yet to be set. Based on Hanssem’s closing price on July 13 – the day before its agreement with IMM was announced – the market capitalization was approximately KRW2.7 trillion. A 30% stake would be worth KRW829 billion ($720 million).

Interior design and furniture retail account for roughly equal parts of Hanssem’s revenue. Customers visit a store in person or online, talk to consultants about design options, book a refurbishment job, and visit the mall – again, in person or online – to look at furniture and accessories. There are already arrangements with consumer electronics suppliers, so customers can pick TVs, sound systems, and toasters at the same time as curtains, sofas, and floor tiles.

IMM wants to build out those complementary verticals, embracing the connected home concept. Appliance rental is another monetization option, given leasing rather than buying air purifiers and water dispensers is an established habit among Koreans. “This is a company that has access to the entire floor plan when customers walk into the shop,” Lee notes.

There is also a desire to capitalize on the growing popularity of online platforms dedicated to home improvement. People host virtual open house sessions, posting pictures of a recent refurbishment project and fielding questions from viewers on how they went about it, which architect they used, and where certain products or concepts came from.

“We want to continue expansion of the online business, where we are catering to the younger generation as well,” says Lee. “Hanssem has the largest pool of directly controlled interior decoration professionals in Korea. The number two player is less than one quarter of its size. It would be great if we can get that online-offline link-up to work. That would be hard for the competition to replicate.”

Hanssem will be the sixth investment from IMM’s fourth flagship fund, which closed at KRW2 trillion last December. Other recent acquisitions include Pet Friends, an online pet product retailer. It was a joint deal with local supermarket operator GS Retail.

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• Topics
• North Asia
• Consumer
• Expansion
• PIPEs
• South Korea
• IMM Private Equity
• PIPE