Deal focus: Hahn finds rich pickings in SK Group

The Korean bourse has seen fewer than 20 PE-backed IPOs of USD 200m or more in the past 10 years. Of these, only a handful were situations in which GPs held majority positions. Automotive marketplace K Car became the second-largest last year after raising KRW 336.6bn (USD 285m) with a market capitalisation of KRW 1.2trn. ING Life's 2017 offering occupies top spot.

K Car's IPO was the culmination of a three-year project whereby Hahn & Company combined SK Encar, Korea's largest used-car retailer, with Joy Rent a Car to create a broader automotive marketplace. The PE firm realised KRW 306.5bn from the offering and retained an interest worth more than KRW 850bn.

SK Encar represented Hahn & Co's first carve-out from SK Group, Korea's second-largest chaebol after Samsung. Others have followed in a steady stream: renewable energy project developer SK D&D, wet tanker and liquefied natural gas transporter SK Shipping, the biofuels unit of SK Chemicals, and most recently, the industrial materials division of chemical and materials subsidiary SKC.

"This is our fifth transaction in four years involving SK Group, and I believe these are the only meaningful carve-outs it has done during this period," said Scott Hahn, the private equity firm's founder and CEO.

"We've done a few repeat transactions. The Korean Air deal [Hahn bought the company's in-flight catering and duty free operations in 2020] followed the Hanjin Shipping deal [the company's bulk carrier business was acquired in 2014]. Both came from Hanjin Group."

He notes that carve-outs in Korea are time and resource-intensive, with much to be done post-deal in terms of establishing businesses as standalone entities with proper processes and governance. Moreover, returns are not the milestone from the seller's perspective. Repeat business comes if companies are run well, achieve growth, and maintain good relations with employees and customers.

Hahn & Co has paid KRW 1.6trn for 100% of the industrial materials division, tentatively named SK Future Materials. The business is best known for manufacturing polyester (PET) films commonly used in screen coverings for electronic devices, in food and beverage packaging, in the windows of vehicles and buildings, and in multi-purpose printing.

It is a classic non-core divestment, with SKC stating that the company would be better positioned to access new growth opportunities as an independent entity. SKC generated KRW 3.4trn in revenue last year, with the industrials division contributing KRW 1.1trn. The company is prioritising its semiconductor, electric vehicle battery components, and eco-friendly materials businesses.

"The leadership of many groups must figure out what is core and non-core. Some are actively divesting non-core assets; others try to hold on to everything," Hahn added. "I can't recall a private equity carve-out in Korea that was because of distress for a long time."

Industrials represents Hahn & Co's largest sector. Investments tend to be geared towards Korea's strengths and in this sense SK Future Materials is a good fit: the company is the largest domestic producer of PET film and the fourth largest globally. The plan is to support expansion globally – Korea accounts for about one-third of revenue – and into new product areas, organically and through M&A.

At USD 1.3bn, SK Future Materials is the sixth-largest private equity buyout announced so far this year and one of only nine to cross the USD 1bn threshold. It ranks first in Korea, where only two other deals have surpassed USD 500m. Buyout value Asia-wide is USD 23.5bn to date, compared to USD 116.6bn for the whole of 2021, amid concerns about deteriorating macro conditions and rising interest rates.

"Base rates have gone up, cost of borrowing has gone up, but leveraged finance markets are still open," Hahn observed. "We've completed several refinancings since the beginning of the year."

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

• Topics
• North Asia
• Buyouts
• Industrials
• South Korea
• Hahn & Co
• manufacturing