Deal focus: Elevation makes Korea healthcare debut

Elevation Equity Partners, a Korea-focused middle-market private equity firm, operates on a project fund basis. Individual opportunities are shared with a handful of domestic institutional players, often repeat investors, who put up most of the capital. The process normally takes about three months.

While the timeline for Elevation’s latest investment – a KRW 17bn (USD 11.8m) commitment to Dx&Vx, a local provider of genetic testing services and diagnostic kits – was no different, the intensity of the process was significantly heightened. The firm spread its net far and wide, visiting the likes of family offices, banks, and some corporates, as traditional LPs pulled back.

“The funding environment is very tough. Many Korean investors have deployed a lot of capital in the last couple of years on the assumption that returns would be coming in by now, but they are not,” said Gordon Cho, who formed Elevation by leading a spinout of The Rohatyn Group’s Korea team.

“In addition, certain funding sources, such as some of the professional associations, not only take contributions from members on an optional basis but also lend money, and there have been net outflows.”

Nevertheless, Elevation was keen to move on Dx&Vx as a relatively unusual special situations opportunity. The KOSDAQ-listed company has undergone two name changes in the past two years as it looks to shake off the stigma of an accounting scandal that resulted in a trading suspension in 2019 and the departure of its CEO and largest shareholder.

Into the breach stepped Jong-yoon Lim, eldest son of the founder of Hanmi Pharmaceutical, one of Korea’s largest drugmakers. He paid KRW 20bn to become the largest shareholder earlier this year with a view to cleaning up Dx&Vx, securing a resumption in trading, and aligning the company with Hanmi Pharmaceutical’s goal to expand from generics into higher value healthcare segments.

Lim’s father, Sung-ki Lim, died in 2020 and his mother, Young-sook Song, currently chairs the parent company, Hanmi Group. Dx&Vx could play a strategic role both in the corporate development of Hanmi Pharmaceutical and in the founding family’s succession planning. Elevation has been brought in as a respected third party that can attest to Dx&Vx’s credibility.

“They wanted outside investors to validate the company, and we are involved in that. We are participating through a corporate bond, with great downside protection and no ceiling on the return,” said Cho. “We believe that the company will become a cornerstone asset as Hanmi develops under the next generation of leadership.”

Elevation is the largest investor in a KRW 35bn bond issue. The deal was negotiated on a bilateral basis after the private equity firm was able to leverage a preexisting relationship with Dx&Vx’s management team.

There are several strands to the company’s business: it has developed next-generation sequencing technology and possesses the only whole-genome data map, which form the basis for genetic tests for serious medical conditions; it is developing next-generation cancer vaccine utilising mRNA platform technology; and it manufactures in vitro diagnostic kits.

In addition, it is the majority shareholder in Oxford Vacmedix, an Oxford University spinout that specialises in immunotherapy. Two in-house drug candidates are currently in clinical trials.

Dx&Vx is currently loss-making, so the new investors will pursue a turnaround, relying to some extent on synergies with Hanmi Pharmaceutical. The larger company, which generates KRW 1.2trn in annual revenue, is already working on cancer vaccines and has an extensive distribution network in China that could carry Dx&Vx’s diagnostic kits. Overseas M&A is also on the agenda.

For Elevation, which has largely focused on consumer deals to date, it represents an opportunity to get exposure to healthcare in conjunction with an influential partner.

“We’ve looked at several special situations-type deals but not pulled the trigger. At the same time, we were looking for an entry point into healthcare, a way to get our foot in the door,” said Cho. “When this deal came up, we jumped at it. There is strategic value in getting close to one of the largest domestic pharma groups.”

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• Topics
• North Asia
• Healthcare
• Expansion
• South Korea
• Special Situations
• Pharmaceuticals