Fast-growing private equity funds in South Korea will accelerate restructuring of distressed industries and companies as Korea Inc. faces the challenge of persistent low growth amid strong global headwinds, leading PEF managers said. Buyout activities will rise in the coming years, they predicted.

“Buyout investment will increase in the long term, as social demand is growing that (Korean) conglomerates should ease their concentrated business power,” said I.J. Song, CEO of IMM Private Equity, at a PEF forum in Seoul on Friday discussing the growth of local PEFs and market prospects. IMM acquired homegrown franchise Hollys Coffee in July 2013.

“Moreover, I see change in Korean sentiment towards mergers and acquisitions. In the past, people regarded selling a company as something shameful. That sentiment is changing.”

U.S. private equity firm Lone Star’s buyout and resale of the Korea Exchange Bank during the 2003-2012 period, through which the fund earned 4.5 trillion won ($3.8 billion), left such negative perceptions toward PEFs among Koreans. 

Private equity funds were first introduced in Korea in 2004 with the government’s intention to nurture local capital against foreign entities for corporate restructuring and investment diversification. 





















During the 2004-2015 period, the private equity industry saw dramatic growth. Private equity investment totals in Korea surged from 400 billion won in 2004 to 58 trillion won in 2015, according to data by the Financial Supervisory Service.

The growing presence of PEFs in Korea was best witnessed when local private equity manager MBK Partners clinched a 7.2 trillion won deal with Tesco to acquire the country’s second-largest discount store chain Homeplus last year. 

Northeast Asia-focused MBK Partners CEO Yoon Jong-ha said the buyout market in Korea has seen regulation easing and large-cap firms increasing, which will contribute to industrial restructuring.

Yoon, an ex-Carlye Group executive, shared his experience of successful restructuring and boosting corporate value by taking the example of ING Life Insurance, which MBK acquired from Dutch parent company ING Group for 1.84 trillion won in 2013.

“We transformed the firm from a lax subsidiary under a European company to a powerful CEO-centered Korean-type one,” Yoon said.

He said the number of financial planners saw a net increase for the first time in eight years last year and net profit doubled to 300 billion won.

Private equity funds are the best players when it comes to raising corporate value, Song said, explaining that IMM’s acquisition of Hollys Coffee led to a 30 percent increase in sales and 500 more jobs last year.

Another private equity manager, JKL Partners CEO Gerry Jung, also said PEFs will play a bigger role in industrial restructuring, given that corporate life cycles have become “very short.”

Mirae Asset Private Equity CEO Ryu Jung-hun and his counterparts at the forum agreed that PEFs should avoid investing in companies directly affected by cyclical industries.

“Sometimes we can be caught in a macro statistics trap. We are trying our best to invest in noncyclical industries,” Yu said.

Korea Capital Market Institute president Shin In-seok called for reform in governance of risk-averse public pension funds including the National Pension Fund, saying many of the PEFs are still dependent on institutional investors. 

Institutional investors started allocating more money in PEFs since 2008 in Korea as the economy apparently entered a low-growth cycle and the stock market became more volatile. 

By Kim Yoon-mi
(yoonmi@heraldcorp.com)