Deal focus: SJL fills Korea’s cross-regional gap

Helping Korean corporates step outside their comfort zone and engage in cross-border M&A is a recognised private equity opportunity, yet arguably difficult to realise.

Over a decade ago, the National Pension Service (NPS) set up the Corporate Partnership Fund, which is intended to stimulate activity by matching commitments to deals made by domestic companies. GPs are appointed to represent NPS as managers of the single-asset funds that execute these transactions. However, access was limited to larger corporates, and they have shown mixed interest in the scheme.

Alternatively, companies might work directly with global private equity firms that have resources and networks in target countries. The complicating factor is that most of the larger GPs run separate funds for Asia, Europe, and North America, so cross-regional opportunities may fall through the cracks in the absence of unanimous support. Steve Lim saw this happen when he was Korea head of CVC Capital Partners.

“I saw plenty of cross-regional opportunities at CVC,” Lim said. “I asked myself, ‘Why can’t we work with strategic investors who know sector, product, client, and market? We bring money, deal sourcing knowhow, and M&A expertise. And then post-acquisition, we play the role of integrator and put in place the right governance structures and local management incentive programmes.’”

On departing CVC in 2018, Lim established SJL Partners to do just that. The Seoul-based firm has completed five investments to date – all on a deal-by-deal basis with backing from local LPs – and accumulated approximately USD 1bn in assets under management. Lim is contemplating launching a traditional blind pool fund, with a target of at least USD 500m, at some point next year.

Most recently, SJL teamed up with domestic in vitro diagnostics business SD Biosensor to acquire US-listed Meridian Bioscience, a leader in COVID-19 testing, for USD 1.53bn. The take-private still requires shareholder approval. Assuming it closes, SD Biosensor will own 60% of Meridian to SJL’s 40%.

“SD Biosensor wasn’t explicitly looking for overseas targets, but it wanted to access North America. The company generated USD 2.3bn in sales last year, but only 0.4% of that was to North America and it wasn’t even under their own brand – Roche distributes for them,” said Lim.

“The US and Canada represent about 40% of the global market for reagents and ingredients used in PCR [polymerase chain reaction] tests. SD Biosensor needed to get into that market, so we looked at about 200 targets, narrowed it down to five, and then went after one of the first two.”

The merger is regarded as a natural combination of Meridian’s product commercialisation expertise in the US market and SD Biosensor’s broader product portfolio and manufacturing capabilities. COVID-19 tests accounted for more than one-third of Meridian’s USD 317.9m in revenue for the 12 months ended September 2021, and it wants to address the inevitable decline by introducing new products.

Structure and process

Specialty chemicals are a key focus area for SJL. Alongside electronic materials, healthcare, and bioindustry, it is one of four areas where Korean conglomerates seem especially keen on global assets.

Two divisions of US-based Momentive Technologies – one focused on specialty silicones, the other on quartz and ceramic components used in semiconductors – were carved out in 2019 in conjunction with KCC Corporation and Wonik QnC, respectively. Earlier this year, SJL worked with SKC on the acquisition of Nexeon, a UK producer of silicon anode materials used in lithium-ion rechargeable batteries.

Lim notes that Momentive appeared on SJL’s radar after several Chinese state-owned enterprises (SOEs) pursued it but failed to win approval from the Committee on Foreign Investment in the US (CFIUS).

Two other investments were at the holding company level in domestic businesses. However, the objective was still to facilitate cross-border M&A. Biopharma player Celltrion acquired a drug portfolio from Japan’s Takeda Pharmaceuticals in 2020, but leather goods manufacturer Vigevano ended up without a deal. SJL subsequently exited its position in the company.

The private equity firm’s deals generally do not include the right to put its stake to the Korean partner. There is the option to drag the partner’s stake into a 100% trade sale, but the exit route of choice is an IPO. SJL occupies a senior position in the waterfall, which means it receives distributions ahead of the partner until a target return of 6% is achieved. Thereafter, the upside is shared.

SJL approaches potential targets as a private equity investor, and once it has a foot in the door, makes the case for including a Korean company as a means of accessing Asia.

“When Korean corporates approach US companies, they get no response. CEOs and management teams in the US don’t like the top-down management style and rigid corporate culture of Korean companies and then there are no international governance structures,” said Lim, who spent 20 years in investment banking with J.P. Morgan before joining CVC.

“If a Korean company can help on R&D and open the door to Asian markets, we can position it as a win-win acquisition. On top of that, we keep the target independent, so it doesn’t become a division of the Korean company and can grow in a sustainable way. In five years, when we exit through an IPO, the Korean company remains a shareholder.”

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

• Topics
• North Asia
• North America
• Buyouts
• Industrials
• Healthcare
• South Korea
• SJL Partners
• manufacturing