Deal focus: Elevation targets Lumena uplift

Profit margins for consumer electronics brands are often in the single digits. Korea-based Lumena, best known for making camping lanterns and portable fans, has consistently achieved 30% because it spends virtually nothing on marketing: recognition of its product quality spreads by word of mouth.

“They read every single online comment on their products, and if the same issue comes up five times, they go back to the design team and improve that functionality. If the fan is too loud, the design team will work all day and night to get the decibels down,” said Gordon Cho, founder of Elevation Equity Partners, formed through a spinout of the Korea team at The Rohatyn Group.

“Whenever young people buy anything, even if it’s a USD 10 purchase, they search online for reviews. Most consumer electronics companies rely heavily on marketing – even Dyson recently started doing it – but these guys get such good feedback on their products they don’t market at all.”

Elevation recently acquired a 51% stake in Lumena at an approximate valuation of KRW 120bn (USD 94.4m), according to a source close to the situation. The private equity firm declined to comment on the amount paid. It continues to work in a deal-by-deal basis, sourcing capital from Korean investors for single-asset project funds.

The Lumena opportunity came up because the eight-year-old company acknowledged that it required external support to get to the next level. Cho credits Joong-heon Jin, the founder who was previously an industrial design engineer at Samsung Electronics and Nokia, with being open-minded enough to sacrifice control in return for expertise in areas such as in strategic planning and marketing.

Elevation’s breakthrough was based on its consumer sector credentials. Over two-thirds of the team’s past deals, spanning Citi Venture Capital International (CVCI), Rohatyn, and Elevation, have been in this sector. Lumena reference-checked the GP thoroughly, including its work on fried chicken franchise BHC, which saw a tenfold increase in EBITDA during a holding period that ended in 2020.

The private equity firm will take steps to strengthen Lumena’s management team, including the appointment of a new CEO and the creation of equity incentive programs. There are also plans to establish more offline distributor relationships – the bulk of domestic sales are online – and enter other markets. Lumena has a following in Japan and Taiwan, but expansion to date has been ad hoc.

In addition, Elevation will work on branding and positioning, tying those efforts into broader product planning. However, Cho believes he already has an “unpolished diamond” given the existing popularity of a product range that extends from lanterns and fans to air purifiers, dehumidifiers, and power banks. Last year, sales and EBITDA reached KRW 24.3bn and KRW 7.4bn, respectively.

“Talk to anyone in Korea and they will probably have a Lumena wireless fan in their home. These products are superior to anything else out there in terms of battery life, recharging time, loudness, strength of airflow, and default rate,” Cho added.

“Most other companies just import from Chinese manufacturers. At Lumena, they identify all the parts, go to an OEM [original equipment manufacturer] and say, ‘This is exactly what we need.’ It takes seven months to develop one product, but it can be priced 20-30% above the competition.”

The company has benefited from COVID-19 as Korean holidaymakers, unable to venture overseas, headed for the great outdoors. But private equity activity in the country has slowed markedly since the start of the year under the weight of assorted macro issues, such as rising interest rates in the US, geopolitical tensions, the conflict in Ukraine, and volatility in public markets.

“Everyone is very cautious,” Cho said, acknowledging that current conditions are delaying Elevation’s long-held plans to raise a traditional blind pool fund from international investors. “It’s somewhere we want to go, but we must be prepared and able to cater to what is needed. We are realistic as to how it is right now.”

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• Topics
• North Asia
• Consumer
• Buyouts
• South Korea
• Elevation Equity Partners
• manufacturing