Samsung’s MRO sale flatters to deceive

Interpark headed an investor consortium, including private equity firm H&Q, that finalized the KRW422 billion ($378.4 million) purchase of a 48.7% stake in iMarketKorea, Samsung's maintenance, repair and operations (MRO) arm. The sellers were nine Samsung subsidiaries that between them held 58.7% of the company and agreed to retain a 10% interest. More importantly, Samsung pledged to continue using iMarketKorea for a further five years, ensuring KRW2 trillion in annual revenues.

This appeared to be an ideal scenario: Korean conglomerate divests non-core asset to strategic interest with private equity coming in for a small portion of the transaction. Look deeper, though, and all is not what it seems. First, H&Q's participation is now in question. Although mentioned in Interpark's initial disclosures, the firm's name is missing from subsequent documents, which refer only to "the consortium." Sources tell AVCJ that H&Q dropped out at the last minute and was replaced by a local insurer.

Second, the situation bears none of the hallmarks that would make it attractive to private equity. "They bought in at about a 30% premium to the market and it trades at about 15x EBITDA," says one local GP who looked at and passed on the deal. "Valuation was our single biggest problem."

But it wasn't the only problem. South Korea's leading chaebols have come in for criticism in recent months as their consistent profitability - Samsung's net income came to KRW16.1 trillion in 2010, roughly three times the 2008 figure - sits in stark contrast to the struggling SME sector.

The Lee Myung-bak administration turned MROs into a focal point, saying that the companies could hurt SMEs. This has led to a spate of PR-driven divestments. Last month, US firm Graingerexited its 49% stake in MRO Korea to affiliates of its partner in the venture, SK Group. The conglomerate says it wants to turn MRO Korea into a social enterprise.

In this context, Samsung's sale of iMarketKorea to Interpark, an eBay-style platform already used by SMEs, makes sense. Industry participants add that, given the nature of the deal, it shouldn't be seen as the first in a wave of divestments by leading conglomerates - in contrast to the aftermath of the Asian financial crisis, they are not under financial pressure to sell.

Second- and third-tier chaebols are said to be the most likely players to offload non-core assets. Vogo Investment's involvement with Tong Yang Life Insurance is a case in point. The PE firm bought a 17% interest from Tong Yang Group in 2006 on the condition that it would get first refusal on any future sale of more than 30% of the company. This duly happened in late 2010 and Vogo increased its holding to 63.5%.

 

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• Topics
• North Asia
• Support services
• Buyouts
• South Korea
• buyout
• H&Q Asia Pacific