Deal focus: Hahn & Co takes GP-led secondaries to new high

For Hahn & Company, Ssangyong C&E is the product of a 10-year consolidation effort involving two funds, the purchase of assets out of bankruptcy, several bolt-on acquisitions, and the assumption of control of a listed company. The GP has created the largest cement producer in Korea with a market capitalisation of KRW 3.2trn (USD 2.5bn), but it believes the transformation work is only half-done.

“We divested some non-core assets in 2018-2019 and invested in a rehaul – retrofitting kilns so that instead of relying on coal for fuel, you can use synthetic resin or plastic waste. The technology is in other markets, but we were the first to introduce it in Korea. We spent almost USD 350m,” said Scott Hahn, CEO of Hahn & Co.

“The other big cost is electricity, so we brought in electricity storage systems. There has been a substantial overhaul of the infrastructure, but that is just stage one. It takes years to retrofit.”

With this in mind, Hahn & Co. has bought itself more time. Coller Capital and Goldman Sachs have anchored a USD 1.5bn single-asset continuation fund with a five-year lifespan. It ranks as the largest GP-led secondary transaction completed in Asia.

Secondary investors have committed approximately USD 1bn and then a further USD 500m comes from existing LPs rolling over their positions and from the private equity firm. Hahn & Co. is contributing capital from its third fund, which closed on USD 3.2bn in 2019.

The next two stages are intended to advance Ssangyong C&E’s conversion into an environmental services play. First, the company wants to participate in national recycling efforts by feeding unwanted plastics into its kilns – which will also boost margins as coal, a paid-for item, is replaced by zero-cost plastics. Second, there are plans to enter the waste management space through M&A.

“Korea has one of the highest plastic consumption rates in the world, it’s a huge problem,” said Hahn. “It can’t be recycled, exporting is no longer an option, and space available for landfill is limited. We can incinerate these mountains of trash and use the energy to heat our kilns. The government is supportive because we are addressing the plastic problem and using less coal.”

Ssangyong C&E produces about 15m tonnes of cement annually across four plants, of which one – Donghae – is the largest single-unit cement plant in the country. It exports to markets such as the US, Chile, the Philippines, and Malaysia. Revenue came to KRW 1.66trn in 2021, up 12.9% year-on-year, while net profit rose 34.5% to KRW 185.9bn.

Hahn, previously CIO of Morgan Stanley Private Equity Asia, established Hahn & Co. in 2010, and the firm’s debut fund closed on USD 750m a year later. Industrials have always been part of the remit and cement appeared on the agenda in 2012. The GP bought Daehan Cement out of bankruptcy and then added on Gwangyang Cement. It also bought a 10% stake in Ssangyong Cement.

In 2016, Hahn & Co. paid around USD 1.2bn to increase its holding in Ssangyong Cement to 78%, committing capital from Fund II. The existing cement assets were folded into Ssangyong Cement, which meant Fund II facilitated an exit for Fund I. The non-core assets were then jettisoned and last year Ssangyong Cement was rebranded as Ssangyong C&E – the E stands for environment.

“We made five acquisitions of smaller businesses before we acquired Ssangyong and then we put them all together to become the country’s largest cement maker. Competitors were consolidating as well,” said Hahn. “After that, construction held up and we made operational improvements in areas like digitisation to boost efficiency.”

The continuation fund allowed Fund II investors to crystallise their return – with a more than 3x multiple, according to a source close to the situation – or rollover.

Prior to this transaction, the largest GP-led secondary deal in Asia was a USD 1.2bn strip sale in 2017, which saw Warburg Pincus sell a portion of every Asian investment from its 11th global fund. A year later, TPG Capital completed a USD 1bn tender offer whereby secondary investors took out positions from its fifth and sixth Asian funds and committed capital to Fund VII.

Ssangyong C&E comfortably surpasses the next-largest single-asset continuation deal in the region. That closed last year – also in Korea – when MBK Partners signed up Partners Group as the anchor investor in an approximately USD 500m fund for its majority stake in fried chicken franchisor BHC.

Earlier this year, Hosen Capital continued the wave of single-asset continuation activity as Pantheon and Committed Advisors supported a USD 280m fund for beef processing business Kilcoy Global Foods. However, several other sizeable single-asset deals that were in the market last year have yet to complete.

Evercore, which served as exclusive financial advisor on the Ssangyong C&E deal, declined to comment.

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• Topics
• North Asia
• Industrials
• Secondaries
• South Korea
• Hahn & Co
• Coller Capital
• Goldman Sachs
• manufacturing
• Secondaries