KKR, Affinity in Asia's largest-ever trade sale

First, AB InBev was a motivated seller. Eight months earlier InBev acquired Anheuser-Busch for an aggregate $52 billion, creating the world's largest brewer but also a debt burden that proved difficult to manage in the midst of the global financial crisis. A period of divestments and deleveraging ensued. The likes of CVC Capital Partners, The Blackstone Group and KPS Capital Partners also picked up assets in 2009 as divestments for the year surpassed $7 billion.

Second, KKR and Affinity were seen as reliable buyers in a climate of uncertainty. "We were not the highest bidder but the seller knew we could get a financing done," Henry Kravis, KKR's co-founder, told journalists in Hong Kong last year. "They knew we had the capital, we could speak for it, and that gave us a huge advantage. We didn't have to go out and find six partners in order to put it together."

MBK Partners was the highest bidder, according to sources familiar with the transaction, but KKR ended up agreeing a $1.8 billion deal and then sold 50% of the equity to Affinity for $400 million. It is suggested that, given the broader macroeconomic conditions, each firm was reluctant to see the bidding run to a fourth round; an equal partnership backed by a powerful financing package was preferable.

AB InBev retained the option to reacquire Oriental Brewery five years after the sale on pre-determined financial terms. These terms recognize the rapid growth the company has experienced under KKR and Affinity's ownership.
Between 2009 and 2012, beer sales in South Korea by volume grew at an annual rate of approximately 2%, with premium brands growing by 10%.

The market is a virtual duopoly, controlled by Oriental Brewery and Hite Jinro. In 2009, Hite had a 57% share to its rival's 41%, but Oriental Brewery claimed number one spot in 2012 and now controls 63% of the market. EBITDA has more than doubled to an estimated KRW529 billion ($500 million) in 2013.

The PE firms provided $270 million in capital expenditure plus management and sales and marketing expertise, with KKR's Capstone operations unit spending 16 months on the ground. The personnel additions included In-soo Chang, who helped rejuvenate the sales department and was then named CEO.

While the Cass brand is the primary growth driver, Oriental Brewery reintroduced the OB Golden Lager and Cafri brands, as wall as benefiting from distribution rights for certain AB InBev products.

The buyback represents Asia's largest-ever trade sale exit by private equity investors in dollar terms, with KKR and Affinity on course for a more than 5x money multiple.

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• Topics
• North Asia
• Consumer
• Exits
• KKR
• Affinity Equity Partners
• Consumer
• South Korea
• Exit