STIC sees 3.6x return on golf simulator deal

"The founder first came across the simulator as a piece of entertainment equipment on a US army base. He took it back home and made it better using sensor technology," says Min Su Sung, a director at STIC Investments.

STIC invested in Golfzon through its $150 million STIC PE Fund I - also known as Oryx-STIC Korea Technology Fund - in March 2008. The company completed an IPO in May 2011, becoming the first debutant in a decade to see its market capitalization exceed KRW1 trillion ($878 million) as the stock temporarily spiked, although it has since slipped below the offering price. STIC has now sold its minority stake for $72.9 million, securing a 3.6x return or gross IRR of 66.1%, on an initial investment of $20.3 million.

Golfzon's core offering is a game that is played indoors using real clubs. The player hits the ball into a screen showing a virtual image of golf course, sensors track the ball and a computer calculates where it would land on the course. Golfzon is responsible for four in every five of these simulators sold in Korea, but the hardware market is becoming saturated.

The company's challenge is to develop sustainable income streams from services such as virtual driving ranges. Tonyang Securities estimates that Golfzon's net profit could almost double to KRW90.1 billion by 2013, but this relies on network services nearly doubling from 2011 figures as simulator sales fall by half.

The company's future growth also rests on building a presence in relatively underpenetrated markets with strong potential, notably China. In this respect, Golfzon is following the pattern of other STIC portfolio companies.

The PE firm targets companies that have solid technology and have proven themselves in the domestic market, often through component supply contracts with Korean conglomerates. Historically, production facilities have been set up in China to leverage lower labor costs but now Sung sees manufacturers shifting their attention to Southeast Asia. The rising cost base is evidence of China climbing the value chain as a manufacturer as well as its gradual emergence as an international consumer market.

This represents an opportunity for Korean companies, whether they have the technical expertise Chinese counterparts require as they move into the LCD display space or products and services to meet the recreational needs of an increasingly affluent population.

"The growth potential for these firms comes through expansion into China," Sung says

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• Topics
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