Deal focus: IMM initiates unlikely media merger

Korean lifestyle magazine publisher Design House knew it needed a fresh approach. It was doing well in 2014, with profits having climbed steadily to KRW5.7 billion ($4.7 million) from a low of KRW335 million in 2006. But management believed that new business lines were required to weather a downturn afflicting the country's magazine industry.

A surprising suggestion came from IMM Investment, the VC affiliate of IMM Private Equity: the publishing house should merge with Oheim, an e-commerce company specializing in home furnishings. Though it might seem like an odd pairing, to IMM Senior Associate Wonki Yoon the proposal made a lot of sense.

"We thought that Design House is very attractive, but the growth potential is quite limited at this moment," Yoon remembers. "And Oheim's growth is quite attractive, but their strength of content is quite limited. So we thought that if the two companies are combined, they would be very attractive in the market."

IMM argued that combining the companies would lead to business synergies; Oheim could provide a sales outlet for the designers featured in Design House's eight monthly magazines and also gain exposure through the company's five annual exhibitions. Oheim would also have exclusive retail rights to products featured in the magazines, giving it an edge over other Korean online specialty retailers, which typically suffer from limited product lineups.

IMM's pitch won over the two management teams and they agreed to try the idea. The first stage of the merger was an investment by IMM in Design House, which was recently announced; the GP committed KRW25 billion for a 34.5% stake in the company, half of which came from the CEO's holding and half from newly issued shares. In addition to facilitating the merger, the investment will support Design House's expansion plans. The company hopes to take advantage of the current downturn among publishers by acquiring some lower-performing competitors.

"Even though the market size is shrinking, the top player is still profitable, so we are also trying to capture the market share of the traditional magazines," Yoon says.

Next, Design House and IMM agreed to buy a combined 60% stake in Oheim, split evenly between the two, with the remainder held by the e-commerce firm's management. The merger process will begin at the start of 2017, with ownership stakes in the combined enterprise calculated based on each company's EBITDA multiple for the 2016 financial year. IMM's goal is to create a business large enough to go public, although this is unlikely to happen within two years.

Despite the ambition of its plan, IMM feels its involvement in Design House and Oheim is fundamentally a safe bet. Both companies are profitable, and the planned merger and IPO give them the incentive to continue their positive growth. If the deal ends up becoming a pioneering model for the Korean market, as the firm hopes, so much the better.

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• Topics
• Venture
• Media
• Expansion
• North Asia
• Consumer
• Media
• Consumer
• TMT
• Venture
• South Korea
• IMM Investment