Asia’s Private Equity News Source avcj.com September 02 2014 Volume 27 Number 32

EDITOR’S VIEWPOINT AVCJ Asia Awards 2014: New, improved and keen to receive nominations Page 3

NEWS Advent, Affinity, Bain, ChrysCapital, CITIC PE, Forum Synergies, FountainVest, GIC, Hony, KKR, MBK, PEP, Polaris, Stonebridge, Tiger Global, Warburg Pincus Page 4

INDUSTRY Q&A Morgan Stanley PE Asia’s Michael Chung talks Korea deal-sourcing Page 14

GRAPHICAL ANALYSIS National interests How Korea became buyout central Can private equity help Korean corporates acquire assets overseas? Page 7 Page 15

FOCUS ANALYSIS

Gangnam gold rush Friends with capital Why global VC firms see potential in Seoul Page 10 GPs look to get with NPS and the gang Page 13

PRE-CONFERENCE ISSUE AVCJ PRIVATE EQUITY AND VENTURE CAPITAL FORUM KOREA 2014 Anything is possible if you work with the right partner

Unlocking liquidity for private equity investors www.collercapital.com London, New York, Hong Kong EDITOR’S VIEWPOINT [email protected]

Managing Editor Tim Burroughs (852) 3411 4909 Staff Writers Andrew Woodman (852) 3411 4852 Winnie Liu (852) 3411 4907 A new, improved Creative Director Dicky Tang Designers Catherine Chau, Edith Leung, Mansfield Hor, Tony Chow

Senior Research Manager AVCJ Awards Helen Lee Research Associates Herbert Yum, Isas Chu, Jason Chong, Kaho Mak

Circulation Manager AS ASIA’S PRIVATE EQUITY MARKET Second, the judging process will continue to Sally Yip deepens and becomes more diversified in reflect the combined views of the private equity Circulation Administrator Prudence Lau terms of asset class, deal size and structure, and and venture capital community, our panel of Subscription Sales Executive geography, the way we asses performance must industry experts, and the AVCJ Editorial Board Jade Chan (in that order of precedence). This may invite evolve. The AVCJ Awards are and must remain Manager, Delegate Sales limited in number – it is vital to their exclusivity questions about transparency. However, we Pauline Chen and quality – but they must also accurately would counter that a completely open vote is a Director, Business Development reflect private markets activity in the region. reflection of basic popularity, name recognition Darryl Mag We were faced with a choice: expand and electioneering rather than quality. We Manager, Business Development horizontally, adding other country awards to take steps to curb vote-packing – voters must Anil Nathani, Samuel Lau our existing China and India offering; or expand register and only those representing members Sales Coordinator the flagship Asian awards vertically, to include of the PE and VC community are considered, Debbie Koo a wider variety of fundraising and investment while the number of votes that can be cast by categories. We have chosen the latter approach. representative of a single firm is limited – but it is Conference Managers Jonathon Cohen, Sarah Doyle, It is our view that the industry is not yet ready for difficult to mitigate the practice completely. Our Conference Administrator the full array of geographical awards; as it stands, preferred approach is to rely on wise heads – our Amelie Poon certain sub-regional markets that lack sufficient judging panel – as a modifying factor. Conference Coordinator Fiona Keung, Jovial Chung depth. We will revisit this position in time. Nominations for the AVCJ Awards are now As for 2014, we are proud to announce open and will remain so until September 30. For Publishing Director a larger AVCJ Asia Awards. There will not be more information and to submit nominations, Allen Lee categories for different geographies, but please go to: www.avcjforum.com/static/avcj- Managing Director categories that acknowledge the quality work awards. As always, we welcome any feedback on Jonathon Whiteley done across the region by firms of different the awards process. sizes. No more will the $400 million single- country growth fund be pitted against the THE CATEGORIES Incisive Media multi-billion-dollar pan-regional buyout vehicle • Fundraising of the Year – Venture Capital Unit 1401 Devon House, Taikoo Place for Fundraising of the Year; there are separate • Fundraising of the Year – Mid Cap 979 King’s Road, Quarry Bay, Hong Kong categories for venture capital, mid cap (below • Fundraising of the Year – Large Cap T. (852) 3411-4900 $1 billion) and large cap (above $1 billion). We • Deal of the Year – Venture Capital F. (852) 3411-4999 E. [email protected] are taking the same approach for investments • Deal of the Year – Mid Cap URL. avcj.com (venture capital; mid cap, below $100 million in • Deal of the Year – Large Cap Beijing Representative Office enterprise value; large cap, above $100 million) • Exit of the Year – IPO No.1-2-(2)-B-A554, 1st Building, No.66 Nanshatan, and liquidity events (IPO; mid cap exit, below • Exit of the Year – Mid Cap Chaoyang District, Beijing, $200 million in enterprise value; large cap, above • Exit of the Year – Large Cap People’s Republic of China T. (86) 10 5869 6203 $200 million). “Bifurcation” is indeed an overused • Venture Capital Professional of the Year F. (86) 10 5869 6205 word in Asian private equity, but we can’t hide • Private Equity Professional of the Year E. [email protected] from the fact that more people are pursuing • Operational Value Add Award more strategies. It is increasingly unfair to identify • Firm of the Year a single exit as the preeminent example of its • AVCJ Special Achievement Award The Publisher reserves all rights herein. Reproduction in whole or in part is permitted only with the written consent of kind over a 12-month period. AVCJ Group Limited. Two things will remain unchanged. First, the ISSN 1817-1648 Copyright © 2014 AVCJ Awards will be limited in number; there are no plans to offer prizes across 50 categories. This was also one of several factors considered Tim Burroughs in deciding against introducing categories for Managing Editor service providers. Asian Venture Capital Journal

Number 32 | Volume 27 | September 02 2014 | avcj.com 3 NEWS

Real assets not overpriced, months, selling an 11% stake in the Hong Kong- AUSTRALASIA listed Chinese generic drugs maker for HK$4.01 if you know where to look billion ($528 million). Joyful Horizon, a subsidiary PEP in $541m partial exit There is no shortage of high-quality real assets of the private equity firm, offloaded 650,000 available to investors despite rising prices in shares at HK$6.30 apiece. Hony’s interest in CSPC from Veda certain areas, industry participants told the AVCJ has now fallen to 51.25%. Pacific Equity Partners (PEP) has exited half its Real Assets Forum. The onus is on investors to stake in credit-checking firm Veda Group in a look beyond the obvious. “If you look around the FountainVest buys majority deal worth around A$580 million ($541 million). world you see people paying ridiculous prices The PE firm sold 269.45 million shares at A$2.15 which give the impression that there is too stake KSS apiece. The price represents a 2.3% discount to much capital chasing too few deals – Australia FountainVest Partners has acquired a controlling Wednesday’s closing price of A$2.20. is a case in point,” said Niel Thassim, head of the interest in Key Safety Systems (KSS), a US-based auto components manufacturer that has Advent supports Australia considerable exposure to China. Canada Pension Plan Investment Board (CPPIB) is participating radiology merger as a co-investor. The previous majority owner, Advent Private Capital has created the fourth- Crestview Partners, retains an interest in the largest radiology group in Australia by bringing business alongside company management. together two independent diagnostics businesses, Lake Imaging and South Coast GIC invests in Taiwan music Radiology. The transaction size was not disclosed but the combined entity will have an annual streaming service provider revenue of approximately A$150 million ($140 GIC Private has invested $104 million in KKBOX, million) and over 50 radiologists. a Taiwan-based company that provides music streaming services in Asia. The proceeds will be private funds group in Asia for Brookfield Asset used to fund the company’s overseas operation, GREATER CHINA Management. “The reality is that 80% of the as well as develop its technology and services. capital going into real assets is chasing 20% of Founded in 2004, KKBOX has 10 million users. China Huarong secures the deals and it’s the low-hanging fruit.” Australia has emerged as a prime target CSRC issues domestic PE $2.4b from investors for investors on the back of several large-scale A group of private investors will pay RMB14.5 privatizations of infrastructure assets, with fundraising rule billion ($2.35 billion) for a combined 20.98% stake valuations reaching 25x forward earnings. The The China Securities Regulatory Commission in China Huarong Asset Management, one of four intensely competitive landscape draws parallels (CSRC) has issued rules that require investment groups tasked with managing non-performing with Europe where core, regulated infrastructure fund managers to register with the Asset loans from state-owned banks, ahead of an IPO. has attracted investors in their droves. Management Association of China (AMAC), a self- The consortium includes China Life Insurance, “The most interesting opportunities for us at regulatory organization set up by the CSRC. After Warburg Pincus, Goldman Sachs, CITIC Securities, the moment are in emerging markets because completing fundraising, managers must make Khazanah Nasional, China International Capital the deal flow in the developed world does not a filing with AMAC that includes a description Corp, COFCO Group and Fosun International. make sense to us from a pricing perspective,” of the fund’s investment focus and its private said Natalie Meyenn, head of private equity at placement memorandum. KKR invests $400m in Australia-based MLC Investment Management. She identifies forestry in Latin America and Hony buys $246m stake in chicken processor Sunner agriculture in Australia and New Zealand as the KKR has agreed to pay $400 million for an most attractive parts of the real assets space. hotel operator 18% stake in Chinese chicken producer Fujian For Brookfield, value can be found in Hony Capital has agreed to acquire a RMB15 Sunner Development – the latest in a string of areas where the path to high-quality assets is billion ($246 million) stake in Chinese hotel investments intended to leverage consumer complicated by operational obstacles. Energy company Shanghai Jin Jiang International Hotels demand for food quality and safety. Fujian Sunner and infrastructure and agriculture are Thassim’s Development. The GP bought 100 million shares is China’s largest breeder, processor and supplier top picks. in Shanghai Jin Jiang at RMB15.08 apiece for a of chicken products. 12.43% stake in the business.

MBK agrees trade sale for including debt. The Wei family owns Hong Kong- CITIC PE exits Jialin Pharma Taiwan’s CNS listed Tingyi Holding. to Luye Pharma Taiwan-based food and drinks conglomerate Ting Hony seals another part CITIC Private Equity will exit a 10.26% stake in Hsin International Group has agreed to buy a Beijing Jialin Pharmaceutical after Luye Pharma majority stake in local TV operator China Network exit from CSPC Pharma Group, a Chinese drug maker, agreed to buy Systems (CNS) from MBK Partners. The value of Hony Capital has made its second partial exit a majority stake in its industry peer. Luye is the transaction is reportedly around $2.4 billion from CSPC Pharmaceutical Group in three also backed by CITIC PE, alongside with CDH

4 avcj.com | September 02 2014 | Volume 27 | Number 32 June 2014

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Investments, New Horizon Capital and GIC Affinity invests $314m in unit of Gateway Distriparks, wants to raise up to Private. Luye will pay RMB3.68 billion ($600 INR1.97 billion ($32.5 million) in India’s first IPO million) for a 57.98% stake in Beijing Jialin. frequent flyer business since the new government was voted in last May. Affinity Equity Partners will pay A$336 million Anchor investors – including Faering Capital – are Zai Lab raises $30m Series ($314 million) for a 35% interest in Virgin covering INR444 million of the offering. Existing Australia’s frequent flyer program in a move PE investors include Norwest Venture Partners A round that allows the airline to shore up its balance and International Finance Corporation. Qiming Venture Partners has led a $30 million sheet. With much of the focus on potential Series A round of funding for Zai Lab, a Shanghai- transactions involving Qantas Airways’ frequent Messaging app raises $65m based biotech drug developer, with participation flyer program, AVCJ understands that Affinity from KPCB, Sequoia Capital and TF Capital. was in negotiations with Virgin Australia for in Tiger Global-led round Hangzhou-based Tigermed, a pharmaceutical several months. The two parties had been talking Tiger Global has led a $65 million investment research firm that is a Qiming portfolio company, intermittently for some time, and Virgin Australia’s in Hike, the Indian mobile message app. also took part in the round. financial pressures ultimately prompted it to Hike’s parent company Bharti SoftBank, a joint pursue a deal. It was not a competitive process. venture between India’s Bharti Enterprises and Taiwan’s Acer to launch Japan’s SoftBank Corp, also took part in the round. Launched in 2012, Hike competes with $34m VC fund messaging apps such as WhatsApp and Line. Taiwanese computer maker Acer has established a NT$1 billion ($33.5 million) venture capital Gulpreet Kohli to leave fund to invest in start-ups, with a view to strengthening the group’s technology India’s ChrysCapital development as well as generating financial Gulpreet Kohli, the managing director at returns. A new executive from outside the ChrysCapital Partners primarily responsible for company has been hired as the investment fundraising, is leaving the firm. The Indian GP director for the fund. informed LPs of his impending departure last week. Kohli, who joined ChrysCapital in 2000, sits on the investment committee and runs NORTH ASIA Virgin Australia will retain a majority stake in consumer sector coverage in addition to leading the Velocity Frequent Flyer program and majority fundraising efforts. His departure triggers a key Bain-backed Skylark to board representation, including the right to man clause on Fund VI, but the vehicle is already appoint the chairman. The transaction will be substantially deployed so it is unclear whether raise $1.1b in Tokyo IPO structured as a convertible note issue by Virgin the clause will be enforced. Skylark, the Japanese restaurant chain backed Australia. It will reduce the parent company’s by Bain Capital, could raise as much $1.1 billion balance sheet gearing by 8%. Virgin Australia has Forum Syneriges leads as it re-lists on the Tokyo Stock Exchange (TSX). no option to buy back Affinity’s stake. Skylark will offer up to 77.68 million shares in the Set up in 2005, the program has doubled in Series C round for Attero IPO, including an overallotment in the event of the last four years to 4.5 million members and Forum Synergies has led a $15 million Series high demand. Based on an indicative price of Virgin Australia said that Affinity’s involvement C round of funding for Attero, India’s largest JPY1,450 per share, the company will seek to raise is intended to accelerate growth. It wants to electronic asset management company. Existing up to JPY112.6 billion ($1.1 billion). boost membership to more than 7 million over backers Draper Fisher Jurvetson, Granite Hill the next three years, increase partner numbers India Opportunity Ventures, Kalaari Capital also Polaris pays $86m for all- and diversify partner mix, and strengthen participated. member engagement. Qantas’ older frequent you-can-eat chain flyer program has 10.1 million members. Affinity’s Japanese mid-market buyout firm Polaris investment values the program at A$960 million. SOUTHEAST ASIA Capital has bought a 100% stake in all-you-can- The market capitalization for Virgin Australia as a eat restaurant chain Edoichi. Financial details whole is currently around A$1.4 billion. KKR appoints Indonesia were not disclosed but local media put the deal value at around JPY9 billion ($86 million). head Polaris acquired the shares from the current device company which is also building its own KKR has appointed Jaka Prasetya, former shareholders including the founder’s family. mobile health and wellness solutions platform. managing partner and founder of Leafgreen Capital Partners, as managing director with Stonebridge leads round responsibility for Indonesia. He will also work SOUTH ASIA on credit and special situations initiatives for wearables maker in Southeast Asia. Prasetya is joined by two Stonebridge Capital has led a $3.5 million Series PE-backed Snowman colleagues from Leafgreen, Rahul Bhargava A round for Ybrain, a Korean start-up that makes and Allan So. Ridha Wirakusumah, a director at wearables for Alzheimer’s patients. Founded in launches India IPO KKR and previously CEO of Bank Internasional 2013, Ybrain is a brain signal-based wearable Snowman Logistics, the PE-backed cold chain Indonesia, is leaving the firm.

6 avcj.com | September 02 2014 | Volume 27 | Number 32 COVER STORY [email protected] Satisfied partners? Korea’s National Pension Service wants private equity to help local corporates expand overseas. Three years after its inception, the Corporate Partnership Fund has yet to prove it is the answer

OVERSEAS ACQUISITION ACTIVITY BY post-deal issues,” says Jaewoo Lee, an M&A Two months ago, CLSA Capital Partners, plus Korean companies came to $2.24 billion this partner in the corporate department of Ropes local GP Calix Investments, launched a KRW300 year, with 69 deals transacted. But more than & Gray. “But when go abroad to acquire a billion ($295 million) global co-investment half of the capital invested came from just six controlling stakes in other sectors, oftentimes fund in partnership with South Korean tire large players – SK Group, Public Officials Benefit they face greater challenges in terms of post-deal manufacturer Nexen. The vast majority of the Association (POBA), LG Group, Mirae Asset integration and operations.” capital will come from NPS. Nexen is not an LP Group, Samsung Group and Korea National The National Pension Service of Korea (NPS), but will invest alongside the fund, which will only Oil Corporation (KNOC) – seeking assets in oil the country’s most active LP, wants to harness target assets that are of interest to the corporate. and gas, real estate, telecommunications and private equity investors’ transaction expertise to Asia-focused private equity firm Excelsior semiconductors. help realize the outbound expansion ambitions Capital Asia also recently won approval from NPS Korean outbound M&A activity has slowed of mid-tier domestic corporations. Several to join the COPA Fund program and help Korean over the past five years. The $5.6 billion initiatives have been launched to this end, but corporates invest offshore. transacted across 102 deals in 2013 was the the most prominent is the Corporate Partnership “The role of the GP is to ensure that proper lowest annual total since the post-global financial Fund (COPA Fund), which launched 2011. Three investment processes – structuring, due crisis frugality of 2009. In 2012 nearly twice as years on, is the initiative working out as planned diligence, risk management, and so on – are much was invested, according to Thomson for these companies and their PE partners? carried out. To become a qualified GP, you have Reuters. to show that you have a successful track record Yet in addition to the continued appetite An evolving model involving a minimum amount of invested capital for energy assets, there is an increasing desire Since the COPA Fund’s inception, at least 17 and that the management team responsible for for exposure to overseas markets in a broad corporate vehicles have been announced. NPS the track record is still in place,” says Michael Kent, range of sectors, from consumer to technology. has agreed to put in KRW6 trillion with the a partner at Excelsior. Anecdotal evidence suggests new geographies local conglomerates – including GS Group, SK The two new funds formed with offshore are coming on to the radar as well, with the Group, KT Corp, Posco and Hanwha Group – GPs have yet to make any investments, although US and Southeast Asia prominent – the former contributing the rest. Each fund is dedicated Excelsior is looking for acquisition targets in China that are a good match for Korean corporates’ global expansion strategies. However, Top Korean outbound M&A deals, 2014 industry participants are generally skeptical as to Acquiror Target Value (US$m) how far the COPA Fund can reach given relatively SK Innovation US-based oil and gas exploration firm Plymouth Grant Gargieled 366.97 few deals have been forthcoming. Lee of Ropes & Gray estimates that less POBA Seven office properties in Germany 295.81 than 10% of the COPA Fund has actually been SK Telecom Malaysian wireless broadband communication service provider 228.07 utilized to make overseas investments. One Packet One Networks recent transaction executed through a corporate LG Chem US-based nanocomposite mambranes manufacturer NanoH2O 200 partnership structure saw IMM invest in a water Mirae Asset Global Invest A Washington-baseed office building 177.84 desalinization business in Spain with GS Group. Source: Thomson Reuters But the deal was completed two years ago. During the old days, the NPS had never been offers established brands, the latter fast-growing to one corporation, and it matches NPS’ capital made clear exactly what function private equity consumer markets. commitment on a 1:1 basis. On this basis there will serve in the program. And then the nature of the prospective should be about $10 billion in dry powder held “The COPA Fund was a very hot topic two buyers is changing. The large conglomerates by the COPA Funds. years ago, but now it has been eased off a little may still dominate deal flow but their mid-cap As the NPS doesn’t have skill sets or bit. The scheme is an interesting concept but it’s counterparts want to participate as well. Less bandwidth to manage these vehicles, it initially difficult to put into practice. Pension funds and experienced in outbound M&A, private equity invited about 13 domestic GPs to join the conglomerates have different views on what potentially has a role to play in helping them program, including the likes of IMM Private a good investment should be. Private equity lockdown acquisitions. Equity, EQ Partners and Mirae Asset Private investors, meanwhile, have become very passive “When Korean companies go abroad to Equity. More recently, the scheme has broadened in the transaction process,” says a local GP who acquire minority stakes in natural resources to allow participation from foreign GPs. The joined the COPA Fund. and energy sector companies, investments are traditional COPA Fund LP structure has also From a broader standpoint, most of the relatively straightforward in terms of managing evolved. larger Korean conglomerates have high credit

Number 32 | Volume 27 | September 02 2014 | avcj.com 7 COVER STORY [email protected]

ratings, which means they have easy to access To be fair to NPS, it now appears to be The same criticisms can be made of certain to bank financing. They also have strong balance addressing the SME space. While the first batch corporates. Without experience and established sheet cash flows. In this context, even if these of partnerships under the COPA Fund focused networks in overseas markets, they are not companies are active in overseas markets, they on large conglomerates, the program is looking able to put together a pipeline of deals despite don’t necessarily need to ask NPS for financial at ways to support mid-cap or even small-size actively looking for targets. This results in support. This is particularly the case when NPS companies. Excelsior’s participation is an example the passive participant, NPS, sitting on a pile sets terms the corporates regard as unduly harsh. of this evolution. The private equity firm strategy of capital as the local GP and the corporate “The cooperation funds are a valuable and is to target at SMEs and help them secure flounder. helpful funding source, but they come with partnerships overseas as well as looking at cross- Lee of Ropes & Gray puts it in more charitable various conditions attached including on when border deals. terms: companies are reluctant to pull the and how different investors will realize their “A lot of Korean SMEs are in a growth phase. trigger. “Even though many Korean companies returns. So depending on the deal type, even We like the entrepreneurial spirit in Korea and are actively looking at overseas targets, they when a cooperation fund has been set up, a the high level of R&D spending on technology,” have been very selective about which deals Korean company may not always go through Excelsior’s Kent says. “For example, recently we to seriously pursue,” he says. “For this reason, such fund to do an overseas acquisition,” says had our China team help one of our Korean the high level of deal sourcing and screening Ropes & Gray’s Lee. activities by Korean companies to identify suitable overseas targets hasn’t resulted in a Misallocation of resources? South Korea outbound M&A corresponding increase in announced cross- Under the COPA Fund scheme, NPS targeted deal volume border deals.” large-scale conglomerates that rank among Based on the events of the past three years, Year Value (US$m) No. of deals the country’s top 30 by market capitalization. private equity’s role and influence in the COPA Moreover, the pension fund’s commitment to 2009 9,982.0 138 Fund program is limited. This is not altogether each corporation was based on credit rating. For 2010 14,035.1 163 surprising given the corporates wield much example, a company with an “AA” to “AAA” grade 2011 8,916.0 156 of the decision-making power. In that case, rating received KRW300-400 million. This leaves would global private equity firms serve as 2012 10,756.7 136 smaller players at a disadvantage. better candidates? They are likely to have larger “If you’re a small- to medium-sized enterprise 2013 5,632.7 102 networks and generate more deal flow than the (SME) and you don’t have an ‘A’ credit rating, but 2014 2,235.0 69 corporates might muster – but would a global ‘BB+’ grade, you might not be even qualified to Source: Thomson Reuters firm want to get involved? set up a corporate funds with the NPS,” a fund “In terms of partnering with international manager tells AVCJ. private equity funds, Korean corporates ideally However, smaller companies are arguably companies at a trade show in Beijing. We assisted could benefit from their global networks, those most in need of support from the COPA in the research into potential targets and markets management contacts, and vast experience and Fund program. Emboldened by NPS’ financing offshore. What we’re looking to do is provide the credibility in getting deals done,” says Paul Kim, backing, they are able to target larger deals company with capital, enabling it to move to the a partner at McDermott Will & Emery. “Some overseas, without worrying about the burdens next level of expansion.” of the larger international private equity funds that might be placed on their own balance may not, however, necessarily be interested in sheets. Peter Whang, managing partner at Joshua Value-add and influence partnering with local Korean companies to make Tree Asia Investments, blames the situation on a Foreign GPs like Excelsior and CLSA are expected acquisitions in their original home markets. It misalignment of interest. to leverage their networks and market expertise may not fit their investment model.” “It’s really the SMEs that would benefit the in different geographies to source deals which The structure of the COPA Fund is also a turn most from this program as they have limited will be benefit to the Korean corporates. Local off for global and domestic GPs alike, according resources to seek overseas investment but going private equity firms, however, may struggle to to one local manager. First, the management fees overseas is arguably more critical to them for operate in markets that are less familiar. Under on offer are too low. Second, there are potential their long-term viability,” he says. “But for NPS, as the COPA Fund scheme, the deal flow often conflicts of interest when investing what is they are a public fund, it would be safer to work comes from strategic investors. effectively NPS’ money to best serve the needs with large conglomerates in order to secure a “The corporate investors know the market. of a single conglomerate. Securing exits at the more stable partner.” At least they have strategic reasons to invest right time and at the right price are a particular Just as the large conglomerates have in certain targets in Europe, America, or other concern. sufficient financing options that they don’t places. They would certainly use the NPS funding “Most large corporate won’t consider IPOs need NPS’ help, they also have strong in-house to be competitive to acquire companies,” says and they don’t really want to deal with minority investment departments that are experienced Alex Zhang, an attorney in law firm Kim & Chang. shareholders,” says Joshua Tree’s Whang. in handling M&A issues. The SMEs, by contrast, In this context, it could be argued that less “Meanwhile, over time they don’t want to sell do not. experienced domestic GPs are simply getting a the acquired asset to another strategic buyer, According to an investment manager with free ride and add little value to the negotiation especially when they want to integrate the a large conglomerate, smaller players lack the process. One local manager points out that some business as part of their long-term corporate relevant experience and they don’t have the domestic GPs are not able to communicate development plan. It is a bit difficult for private resources to bring in third-party professionals – effectively in English; they would be of little equity investors to maximize the investment who come with their own networks – to form help to a corporate that wants to close a deal in return in such a restricted situation.” captive units that focus on overseas deal-making. Russia, for example. Instead of having one strategic relationship

8 avcj.com | September 02 2014 | Volume 27 | Number 32 COVER STORY [email protected]

per fund, Whang suggests creating a fund that four outbound deals. They included a $46 million looking to take control. We invest alongside the is more akin to an “open platform.” Under this commitment to nutritional beverage brand major shareholders and try to help them with structure, the GP would be able to invite the Smoothies Korea, which had outgrown its US- their business,” says Kent. “In this way our interests most suitable strategic investors to look at a based franchisor and wanted to take control of are aligned.” given opportunity. The governance regime the global business. In longer term, NPS is expected to deploy would be better balanced and there would be a Another stand-out transaction saw NPS increasing amounts of capital in private equity clearer path to exit. team up with Mirae Asset Private Equity and – its asset base will more than triple in size over However, exits may still not be completely liberalized. Working with a group of corporates rather than just one, would the GP be obliged “It’s really the SMEs that would benefit the most to give its partners first refusal on any trade sale? And if so, how would these transactions be from this program as they have limited resources priced? This could limit the upside and effectively to seek overseas investment but going overseas cap carried interest payments. is arguably more critical to them for their long- A more perfect union – Peter Whang The COPA Fund scheme remains a work term viability” in progress. It is not a perfect solution but if structured properly it does present an Korea Development Bank to support Fila Korea’s the next 15 years – and it will support the greater opportunity for domestic corporations to acquisition of US-based Acushnet – owner of the diversification offered by domestic GPs that are scale up their operations overseas and at the Titleist golf equipment brand – for $1.23 billion able to invest overseas. MBK has been active same time fertilizes the local PE community by in 2011. throughout North Asia since its inception and allowing GPs to build up experience in outbound Although it remains to be seen whether others are likely to try and follow suit. investments. these partnership arrangements can deliver a “If domestic GPs want to grow bigger, they Meanwhile, NPS is increasingly willing to high volume of transactions, Excelsior is keen to need to have more international capabilities,” one engage with foreign private equity firms. Also try. The firm believes that its approach, which Korea-focused manager says. “This is especially in 2011, the pension fund entered into a co- resembles that taken by SCPE, will prove to be important given Korean LPs are willing to give investment partnership with Standard Chartered effective. “We invest in significant minority stakes more money to domestic GPs. The Korean market Private Equity (SCPE), which completed at least in Korean growth companies, but we are not is limited so you have to go overseas.”

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To subscribe, call Sally Yip at +(852) 3411 4921 or email [email protected] avcj.com FOCUS [email protected] Seoul-searching VCs The South Korean start-up community is flourishing as early-stage investors flock to the country in search of opportunities. What is driving this renewed interest and can it last?

KOREAN-AMERICAN EARLY-STAGE to $91 million – a 135% increase that far exceeds site Ticket Monster was acquired by Groupon investor Altos Ventures has been active in Silicon the 7% growth in later-stage VC deals. The in January for $300 million. Boasting a 45% Valley for eight years. Over that period, it has number of transactions jumped from 37 to 51. share of the country’s group buying market, it is leveraged its Korean connections to back a described as a unicorn in the making. number of start-ups in the country. At two start- Where unicorns flock As seen in Silicon Valley more than a ups a year, however, deal flow was slow. The firm No single factor is responsible for the growing decade ago with likes of PayPal, Google and decided more resources were required to fully appetite for early-stage investments. The first later Facebook, the entrepreneurs from the first take advantage of the opportunity. development VCs have witnessed is the maturing generation of unicorns are now the investors and So last year the Altos launched its first Korea- of the country’s start-up ecosystem. Investments mentors behind this new ecosystem, pumping focused fund, a US-based vehicle with a target go through a full cycle and early backers get their capital into a new generation of start-ups. of $60 million. In January the firm established its first spate of home runs; then more capital flows “Korean founders are more experienced and first local office in Seoul’s Gangnam district. The in, based on a perception that the investment more mature than 3-4 years ago,” says Nathan commitment has already started to pay off. thesis has been proven. Millard, director of Korean start-up platform and “Between of 2005 and 2013 we invested in In Korea, the biggest success story is Kakao Strong Venture portfolio company BeSuccess. nine companies and in last 12 months we have Corp, the company behind messaging app and “There is more infrastructure around them both invested in nine more – and seven since January,” mobile services platform KakaoTalk. Launched in in terms of capital and the quality of mentors.” says Han Kim, general partner and founder at 2010, its early backers include Korea Investment As such, the perception of South Korea Altos. “It has been a combination of having Partners, DCM, Maverick Capital and Japan’s among outside investors is arguably changing. an on-the-ground presence, actually having CyberAgent Ventures. Increasingly, the country is regarded as more people there, and the fact we are seeing better companies coming out of the country.” They are not alone. In the past year, a number South Korea venture capital investment of early-stage investors have either opened 500 100 offices in Seoul or otherwise sought to increase their exposure to South Korea. Silicon Valley- 400 80 based Digital Entertainment Ventures (DEV) also set up a base in Seoul under the banner of 300 60

DEV Korea; 500 Startups is said to be launching Deals 200 40 a fund there (it has already publicly pledged to US$ million back more Korean start-ups in 2014); and Strong 100 20 Ventures has also beefed up its presence. Clearly people are paying more attention to 0 0 South Korea, and for some at least it is translating 2009 2010 2011 2012 2013 2014 YTD into real deal-flow. Seoul is no means the only Expansion capital deals Amount (US$m) - early stage the Asian city to see an uptick in early-stage Start-up/early-stage deals Amount (US$m) - expansion investment over the past couple of years, but a Source: AVCJ Research number of distinguishing factors might just give it the edge over its neighbors. AVCJ Research data certainly seem to support Kakao is the first South Korean business to than just a center for hardware innovation; it is the notion that the South Korean venture capital join the “unicorn club” – a loosely defined group gradually gaining a reputation for producing is experiencing something of a renaissance. of tech start-ups valued $1 billion or more that successful software start-ups. Overall investment is on the rise, totaling $457 launched within the last 10 years. Shareholders “Korea is going wild in terms of software million across 125 deals in 2013, compared to recently gave the green light to a merger with production,” says John Nahm, a managing $378.3 million across 123 deals the previous internet portal operator Daum Communications director with California-based Strong Ventures. year. It is the highest annual total since before Corp. that will value the business at $3 billion. “There is a sort of prejudice that Koreans are the global financial crisis. So far this year $366.7 Other VC- backed start-ups have since joined good in hardware but are not good in software, million has been invested across 62 deals. the club or are on their way to doing so. In May but it is simply not true.” It is worth noting that much of this growth Coupang, Korea’s answer to Amazon, raised a Yet despite the heightened level of activity has come via early-stage investments. Between $100 million round of funding led by Sequoia coming from the private sector it is almost 2012 and 2013, capital committed in this Capital. The transaction was said to value the impossible to ignore the role played by Korea’s segment of the market rose from $38.7 million company at $1 billion. Meanwhile, group buying government in nurturing the VC industry. South

10 avcj.com | September 02 2014 | Volume 27 | Number 32 FOCUS [email protected]

Korean President Park Geun-Hye was elected in late 2013 after pledging to attract overseas VC investment into the country. She has followed up with a raft of investor-friendly initiatives. Media deals: Korea wave “The government seems to be taking the Capital Asia’s recent KRW61 billion ($60 million) investment in YG Entertainment – the Korean initiative,” says Kaine Kim, managing director L talent agency responsible for acts including “Gangnam Style” rapper Psy – was perhaps the first at advisory Acuity Partners and partner with significant PE deal to embrace the global cultural phenomenon known as “Korean Cool.” DEV Korea. “They sense that the conglomerates By backing in a company that casts, trains, produces and develops South Korea’s premium may not maintain their global status 10 or 20 K-pop and TV talent, the private equity arm of the French luxury goods conglomerate LVMH years down the road and so they are looking to hopes to capitalize on the rise of the Korea cultural exports. The Ministry of Culture, Sports & discover and foster the next generation.” Tourism said that “Korea Wave” (“Hallyu” in Korean) had 9.3 million-strong following as of last year, Government sponsorship of Korean venture compared to 3.3 million in 2011 based official fan club figures. capital is nothing new. Korea Venture Investment Venture capitalists have mixed views as to whether this presents an opportunity for early- Corporation (K-VIC) K-VIC has been investing in stage investors. “The cool factor of K-pop and Korean drama across Asia is definitely having some the asset class since 2005 and government LPs effect,” says John Nahm, a managing director with California-based Strong Ventures “But on the VC had accounted for roughly one quarter of the side there is a little bit of skepticism.” capital entering Korean VC funds by the time He notes that the more attractive targets for venture investors will be distribution platforms Park came to office. However, more recently the that provide access to content. One example is KakaoMusic, the Spotify-like music service government has focused more of its energy on launched by the VC-backed makers of KakaoTalk. the start-up ecosystem and the role overseas Kaine Kim, managing director with advisory Acuity Partners and partner with Digital investors can play in nurturing it. Entertainment Ventures Korea expresses a similar view. “There seems to be a trend in Korea where Among its initiatives is the Ministry of Science, people access a lot of media through their smart phone and use some kind of application to ICT and Future Planning (MSIP), set up in 2013 download that content,” he says. “But at the same time they do not want to pay a lot of money for it.” to encourage technology innovation. The same The country’s entertainment industry is still at a very nascent stage in terms of marketing year the government said it would grant start-up overseas and there is a need for distribution platforms that can provide steady income streams visas to foreign entrepreneurs in a bid to facilitate from abroad. For all the recognition and revenue earned by “Gangnam Style” Kim observes that further inbound investment. Earlier this year, “the song itself is not going to create an entire ecosystem.” MSIP’s budget was increased to more than $12 However, maybe where there is a will there is a way. YG’s business model is built on a three- billion, with $2 billion specifically earmarked for stage process, the last of which sees a successful domestic artistic go global. It is an admission fostering the early-stage ecosystem. that Korea alone is not enough. The government has also sponsored numbers “For the Korean music industry the domestic market is too small so they have to think about overseas programs intended to give start-ups going global,” says Nobutake Suzuki, a partner with Japan’s Global Brain Corp. “So in that case the greater exposure to global tech trends. best candidate for investment is a company targeting the global market.”

Foreign friends This underscores the importance of overseas High-profile examples of this trend include Both these points add weight to the notion investors to South Korea’s venture capital industry gaming company Nexon and Korean-Japanese that Seoul is growing in prominence as an – not only because of the capital they bring but messaging app developer Line, both of which innovation hub in the region. These ambitions also because of the insight and access to new use Los Angeles as a US base. are shared by Singapore, Hong Kong and Tokyo. markets they can offer. “If you look at Samsung or South Korea is also attracting considerable The prevailing opinion seems to be that if South Hyundai, 70% of their revenue stream is basically overseas interest closer to home. Japan’s Cyber Korea is to eke out a competitive advantage, it from outside of Korea,” says Strong Ventures’ Agent and Global Brain Corporation, for example, will most likely come via a combination public Nahm.”Most companies know that if you want to have offices in the country. Nobutake Suzuki, a and private sector support as the ecosystems go big, you have to go abroad.” partner with Global Brain explains that the many grows. This is the kind of access that likes of Strong synergies between the two cultures can provide “It is still dominated by government funding Ventures and Altos are offering, leveraging their a means for South Korean start-ups to tap the but at the same time the government is evolving, US location with a view to taking Korean start- much larger Japanese market. and so are our local venture firms,” says Altos’ ups global. Another key advantage of US-based VCNC is a case in point. The Korean company Kim. “It will take a while longer to get to the level VCs is the large number of Korean-Americans is responsible for couples’ app Between, which of Silicon Valley but I have no doubt that both able to bridge the two cultures. As a result of this raised a Series C round of funding from Global parties will get there.” connection, many VCs and start-ups have a US Brain and 500 Startups in May. Japan currently He adds that the key to growth will be base in Los Angeles – where South Korea has the accounts for more than 10% of its user base, the marrying the government’s aim of nurturing a largest expat community in the world. largest proportion outside of South Korea. strong start-up industry with the private sector’s “It is true that LA is the capital of Korea “Frankly speaking, it is easier for us to enter drive to generate attractive returns. outside of Korea,” Nahm says. “We believe Los the Korean venture community because This view is echoed by BeSuccess’ Millard. Angeles can be as good as a platform as Silicon entrepreneurs are so interested in accessing “The government can get things going but at Valley. The city is becoming a hyper growth the Japanese market,” says Suzuki. “Our value the end of the day a start-up ecosystem is based center for tech that can provide the networks proposition is that we can support them their on a bottom-up and not top-down model. They needed to catapult Korea start-ups into the entry, hire the right people and help them can help start-ups, but they cannot create good global market.” market to Japanese clients.” start-ups.”

Number 32 | Volume 27 | September 02 2014 | avcj.com 11 Reasons why you must attend the 5 AVCJ Korea Forum Only 2 weeks (11 September 2014) before the event starts.

Meet the following LPs that are speaking and attending the forum:

1 AIA Life Korea • Axiom Asia Private Capital • Construction Workers Mutual Aid Association • Hanwha Life • HarbourVest Partners • Hyundai Marine & Fire Insurance • Khazanah Nasional • Koramco REITs & Trust • Korea Investment Corporation • Korea Teachers Pension Fund • Korea Venture Investment Corporation • Korean Federation of Community Credit Cooperative • LGT Capital Partners • LIG Insurance • Milltrust International Group • National University of Singapore • Seoul Metropolitan Government • Shinhan Financial Group • Shinhan Life Insurance • StepStone Group • Woori Bank ... and many more!

Explore where the next generation of entrepreneurs and investments will originate and how 2 exits will be sourced and returns realised in a discussion featuring experienced venture capitalists: Han Kim Jason Lee General Partner and Co-Founder Managing Director of Overseas Investment ALTOS VENTURES L&S VENTURE CAPITAL

Hear how South Korea¹s potential as a buyout destination and the opportunity to do control 3 deals makes it an attractive investment destination from country industry leaders: Jason Shin Joseph Lee Managing Partner Partner & Senior Managing Director VOGO FUND IMM PRIVATE EQUITY, INC

Find out how private equity is helping Korean businesses expand overseas and exploit the regions 4 consumer investment story in a session featuring the following experts: Minjun Chung DC Choi Vice President Executive Director HARBOURVEST PARTNERS (ASIA) LIMITED GLOBAL M&A CENTER (KOTRA)

Discover where you will find thenext hot sectors in Asian private equity when a panel of leading 5 regional GPs offers predictions for the future of the asset class: Charles Huh Jim Hildebrandt Senior Managing Partner Managing Director CVC CAPITAL PARTNERS BAIN CAPITAL ASIA

Registration enquiries: Carolyn Law T: +852 3411 4837 E: [email protected] Enquiry Sponsorship enquiries: Darryl Mag T: +852 3411 4919 E: [email protected]

Asia Series Sponsor Co-Sponsors

Join your peers Scan the QR code with your mobile Tweet #avcjkorea phone to access the event latest BOOK NOW AT AVCJKOREA.COM updates Reasons why you must attend the AVCJ Korea Forum Only 2 weeks ANALYSIS 5 [email protected] (11 September 2014) before the event starts.

Meet the following LPs that are speaking and attending the forum: 1 AIA Life Korea • Axiom Asia Private Capital • Construction Workers Mutual Aid Association • Hanwha Life Target market • HarbourVest Partners • Hyundai Marine & Fire Insurance • Khazanah Nasional • Koramco REITs & Trust • Korea Investment Corporation • Korea Teachers Pension Fund • Korea Venture Investment Corporation From the National Pension Service downwards, Korean institutions are increasingly courted by international • Korean Federation of Community Credit Cooperative • LGT Capital Partners • LIG Insurance • Milltrust International Group • National University of Singapore • Seoul Metropolitan Government • Shinhan GPs on the fundraising trail. Building ties with these groups, formally or informally, can be difficult Financial Group • Shinhan Life Insurance • StepStone Group • Woori Bank ... and many more!

THE LITTLE RED TAXIS SCOOTING ACROSS While some functions can be outsourced to and then invite applications from managers that the interactive map plot five possible approaches third-party managers, NPS has moving into co- meet certain criteria in terms of fund size, tenure Explore where the and how next generation of entrepreneurs and investments will originate to the National Pension Service of Korea’s investment and building up its direct investment and local registration, and sometimes expected exits will be sourced and returns realised in a discussion featuring experienced venture capitalists: (NPS) international center in Seoul. The routes capabilities. The greater risks in these areas fees and returns as well. A deadline is set for the 2 displayed on the fund’s website are well-trodden can come back and bite you, although several submission of documentation and the GP or paths for overseas private equity firms. The foyer industry participants say they have yet to see the agent must also reach an agreement with a local Han Kim Jason Lee of the building itself is akin to a United Nations of likes of NPS and KIC take a hit yet. securities firm to act as an intermediary (NPS and General Partner and Co-Founder Managing Director of Overseas Investment fundraising – “Everyone is there, everyone wants Below the top tier, Kim’s iceberg theory to a KIC are exceptions to this rule). It is followed by ALTOS VENTURES L&S VENTURE CAPITAL to market to NPS,” one GP observes. certain extent plays out. According to the Asia interviews before the LP makes a final decision. The attraction is clear. NPS had KRW446 investor relations head of a mid-sized global PE The system creates a natural bias towards trillion ($439 billion) in assets as of June 2014, of firm, there are around 150 investors in the region groups that can accommodate the mandate Hear how South Korea¹s potential as a buyout destination and the opportunity to do control which 9.4% was in alternatives. Last year the fund actively committing to the asset class and he – because they are fundraising anyway or they increased its target allocation to 11.3%. This could has covered about 60% of the market. However, offer SMAs – and meet the criteria. It could result deals makes it an attractive investment destination from country industry leaders: mean an additional KRW153 trillion is pumped about 90% of the capital he has raised in the in LPs missing out on the best managers. 3 into alternatives over the next 16 years as NPS’ region comes from the largest 5-10 LPs. The approach ties into wider frustrations asset base grows to KRW1,732 trillion by 2030. Strategies in the placement agent community expressed by Kim of Castling at investors’ Jason Shin Joseph Lee Korea is an increasingly popular stopping vary but an independent practitioner might only attitude towards the asset class. “We met with Managing Partner Partner & Senior Managing Director point for international GPs on the fundraising VOGO FUND IMM PRIVATE EQUITY, INC trail, and not only because of NPS. A number of other institutions are building up their private “Korea is like an iceberg. The tip is very visible equity programs – to a certain extent following Find out how private equity is helping Korean businesses expand overseas and exploit the regions NPS’ lead – but they remain relatively untapped but getting to the bit below the water is a cost and challenging to address. consumer investment story in a session featuring the following experts: benefit issue” – Steve Kim “Korea is like an iceberg. The tip is very visible 4 but getting to the bit below the water is a cost benefit issue,” says Steve Kim, CEO of local asset have a couple of realistic targets in Asia’s less a group that did a secondary vehicle in 2012 Minjun Chung DC Choi manager Castling Group. “Broadly speaking, there mature markets. At the same time, the immediate when everyone and their mother was doing Vice President Executive Director are a handful of players at the top and the big need to communicate with known investors but secondaries,” he says. “One of the investment HARBOURVEST PARTNERS (ASIA) LIMITED GLOBAL M&A CENTER (KOTRA) elephant is NPS. Then there are a lot of smaller be balanced against the longer-term objective of professionals said he liked secondaries because players with structural issues and language cultivating new sources of capital. there was zero chance of not making money; he barriers. It doesn’t feel like they are ready to make “You can ignore the smaller players but was adamant about it. We talked to them about Discover where you will find thenext hot sectors in Asian private equity when a panel of leading a meaningful move into this asset class just yet.” because KIC and NPS have invested heavily over manager selection and diversification and they regional GPs offers predictions for the future of the asset class: the years their capacity to support additional just said they didn’t believe in those things.” 5 Across the tiers new managers is sometimes questionable,” says Kim doesn’t expect this approach to change NPS shares the top tier with Korea Investment Vincent Ng, partner at placement agent Atlantic for a generation, or at least not until institutions Charles Huh Jim Hildebrandt Corporation (KIC), and some would add Korea Pacific Capital. offer better salaries and bring in people with the Senior Managing Partner Managing Director Post as well. As of April 2014 KIC had a 10% Alongside Korea Post and Korea Teachers’ right kind of experience. CVC CAPITAL PARTNERS BAIN CAPITAL ASIA allocation to private equity, real estate and Pension are insurers such as Samsung Life and A number of GPs have set up offices in Korea, hedge funds out of a total corpus of $72 billion. Hanwha Life. The list is filled out by the likes of which can help bypass bureaucracy but is no New CIO Heung-Sik Choo has said he wants Korea Teachers’ Credit Union, Military Mutual Aid guarantee of an allocation. The strength of the alternatives exposure to reach 20% over the Association, the Employment Insurance Fund, relationship, particularly with LP teams that might Registration enquiries: Carolyn Law T: +852 3411 4837 E: [email protected] next 10 years to counterbalance expected lower the Public Officials Benefit Association, and the be small in number, is more important. “You have Enquiry Sponsorship enquiries: Darryl Mag T: +852 3411 4919 E: [email protected] returns from traditional asset classes. Construction Workers Mutual Aid Association. to be drinking with them, understanding them,” Given the rapid ramp up in its asset base, NPS These groups’ appetite for PE varies, but many adds Atlantic Pacific’s Ng. “You can also provide in particular is going to cement its position as a are expected to become more active participants global markets intelligence that they may not Asia Series Sponsor Co-Sponsors significant private equity player. The question is in overseas funds as they seek diversity in terms have access to because they have language how efficiently its portfolio will develop. As one of asset class and geography. Getting to them, issues or have limited ability to travel.” fund-of-funds LP notes, NPS faces the “problem” however, can be a laborious process. In this way, there is a selection bias towards of having too much capital to deploy as it seeks Rather than track a sector over several years GPs who visit, but this isn’t restricted to Korea. “It to keep pace with the growth of its asset base, and identify 2-3 attractive managers, Korean all comes down to individual relationships,” the which puts a strain on internal resources. institutions tend to decide on an area of focus fund-of-funds LP adds. “They have to like you.” Join your peers Scan the QR code with your mobile Tweet #avcjkorea phone to access the event latest 13 BOOK NOW AT AVCJKOREA.COM updates Number 32 | Volume 27 | September 02 2014 | avcj.com INDUSTRY Q&A | MICHAEL CHUNG [email protected] Know your chaebols Michael Chung, managing director and head of Korea at Morgan Stanley Private Equity Asia (MSPEA), discusses the intricacies of buying businesses from local conglomerates – and the prospects for exits via trade sales and IPOs

Q: You recently acquired Hanwha may cause companies to be Are we going to see more Group’s construction materials cautious about further business public market exits? business. How strong an diversification and incentivize A: A number of minority investment theme are them to pause and make sure investments have taken place in corporate divestments? they are on track in terms of their Korea however we haven’t seen A: We have seen a long-term trend core businesses. We don’t know many private equity exits via going back to the Asian financial of any chaebol that is particularly IPOs in the recent past. Hyundai crisis a number of chaebols acquisitive right now, which Rotem was quite possibly the were forced to restructure is one of the reasons why this only PE-backed company to list and divest while some filed year may turn out to be a good last year. This year the equity for bankruptcy. That led to a vintage for PE investing. We at capital markets are better, the 10-year streak of deal flow for MSPEA are not really competing KOSPI 200 Index is up on last both PE and strategic investors. against the chaebols in the mid- year’s average, and there are For example, MSPEA has held cap space today. companies going on road shows. controlling stakes in three “We don’t The IPO market is opening up Ssangyong companies – the Q: You completed two Ssangyong but it still remains to be seen trading arm, a steel business and deals before buying the paper know of any whether companies with PE now Ssangyong C&B, which is business. Did those first two shareholders will get through the a tissue paper business. As for help you get the third? chaebol that window. We think the IPO market the more recent divestitures, it A: It is helpful because you know is particularly will sustain or improve and that’s is not as intense as during the the former business group’s one of the reasons we invested Asian financial crisis. Chaebols culture, but in terms of actually acquisitive right in Innocean. As a minority are a lot more mature and getting the deal done it’s not investor in a chaebol business, transparent in how they govern so helpful because the sellers now” you are primarily dependent on their businesses. They realize are different. Ssangyong an IPO for exit. they need to focus on their Corporation, the trading comprises most of his wealth, core businesses where they are business, was a distress deal so then he or she cares about Q: As for trade sale exits, if competitive. MSPEA’s recent the sellers were the creditors; everything – who they’re selling chaebols are not in acquisitive acquisition of Hanwha L&C is Ssangyong C&B was owned by to, timing, indemnities, and so mode, will it be harder? another example. Hanwha’s an individual. On the other hand, on. When you are dealing with A: There are pockets of capital construction materials unit a similar scenario can be very experienced M&A professionals out there willing to deploy that produced good margins but helpful in minority situations. within any group the discussion can get aggressive when they the group decided to sell it and We invested in Hyundai is significantly more seamless. see something attractive. But use the proceeds to pay down Rotem, the largest rolling stock They usually know what the M&A it doesn’t feel like chaebols are debt and fund their new capital manufacturer in Korea, in 2006 practices are. On the other hand, putting a net out to see if they expenditure in their core areas. and still hold a position in it. The post-investment we find that can catch 2-3 targets in one year. company is majority-owned businesses previously owned by If there is an available target Q: How significant is government by Hyundai Motor Group and chaebols have been better run out there and if they miss the pressure in these situations? we recently closed a deal in terms of governance, internal opportunity they know they will A: There is no new regulation for Innocean Worldwide, an controls, enterprise resource regret it, they will still go after or law that can explain why advertising agency and another planning, and human resources it. Our focus is not so much on the chaebols have not been Hyundai Motor affiliate. We have programs. But the flip side is timing exits as making sure our acquisitive in recent times. I seen that long term relationships there might be less low-hanging portfolio companies sustain suppose one could say that can be valuable. fruit among the formerly chaebol their value at any given time. If it’s more like guidance from companies. With businesses a company has high strategic the regulatory bodies. For Q: How is buying from an like Ssangyong C&B, there were value, timing has less to do with instance, the government individual owner different to things we could do immediately your ability to exit. If it is not may decide to increase buying from a chaebol? to enhance the company’s value.. strategically valuable you may scrutiny of certain business A: If you are negotiating with face challenges, especially in groups’ overall governance an individual owner over Q: Hyundai Rotem was Korea’s times when strategics are not and interdependencies. That a business or an asset that biggest IPO in several years. acquisitive.

14 avcj.com | September 02 2014 | Volume 27 | Number 32 GRAPHICAL ANALYSIS [email protected] Korea’s buyout boom Spurred by a combination of local conglomerates - in distress or under government pressure - offloading assets and divestments by foreign players, Korea’s share of Asia buyouts has grown steadily

Korea vs Asia private Korea’s share of Asian Leading buyout transactions equity investment private equity buyouts in Korea

Date US$m Target Acquiror 80,000 Nov-10 798.3 Tong Yang Life Insurance Vogo Investment; Min-Joo Lee 60,000 Dec-10 236.3 Dongbu Hannong Hana Daetoo; Eugene Asset Management; Daishin Securities; 40,000 2010 KB Investment Oct-10 220.5 GS Gangnam Broadcasting MBK Partners; Macquarie; C&M Co US$ million 20,000 Dec-10 173.8 Hyundai Pusan - port terminal Hana Daetoo Oct-10 133.2 GS Ulsan Broadcasting MBK Partners; Macquarie; C&M Co 0

2010 Investment Buyouts

South Korea Date US$m Target Acquiror 80,000 South Korea Rest of Asia Rest of Asia Dec-11 174.4 Suhyang Networks Li & Fung; AEA Investors 60,000 Aug-11 80.8 Cowell E Holdings Hahn & Company Nov-11 74.3 Nolboo Morgan Stanley PE Asia 40,000 2011 May-11 39.8 Unison HiTech Headland Capital Partners US$ million 20,000

0

2011 Investment Buyouts

South Korea Date US$m Target Acquiror 80,000 South Korea Rest of Asia Rest of Asia Aug-12 1,053.3 Woongjin Coway MBK Partners; CIC; CPPIB; OTPP 60,000 Oct-12 328.2 STX Energy Orix Jun-12 306.9 Nexcon Technology Unison Capital 40,000 2012 Jun-12 282.0 Kumho Buslines IBK Capital; Kstone Partners US$ million 20,000

0

2012 Investment Buyouts

South Korea Date US$m Target Acquiror 80,000 South Korea Rest of Asia Rest of Asia Aug-13 1,539.4 ING Life Insurance Korea MBK Partners 60,000 Feb-13 1,368.3 Green Non-Life Insurance Jabez Partners Jan-13 957.9 NEPA MBK Partners 40,000 2013 Dec-13 376.8 Korea Bulk Shipping Hahn & Company US$ million 20,000 Jul-13 236.4 Loen Entertainment Affinity Equity Partners

0

2013 Investment Buyouts

South Korea Date US$m Target Acquiror 80,000 South Korea Rest of Asia Rest of Asia Mar-14 1,920.0 ADT Caps The Carlyle Group 60,000 2014YTD Feb-14 837.0 Hyundai Merchant Marine - IMM Investment LNG business 2014YTD 40,000 2014YTD May-14 653.9 Dongbu Express Q Capital Partners; KTB Private Equity US$ million 20,000 Jun-14 295.8 Dreamline EQ Partners Jun-14 294.6 Hanwha L&C Corp - Morgan Stanley PE Asia 0 construction materials

2014YTD Investment Buyouts South Korea South KoreaSouth Korea Rest of Asia Source: AVCJ Research South Korea Rest of AsiaRest of Asia Rest of Asia

Number 32 | Volume 27 | September 02 2014 | avcj.com 15 11-13 November, Four Seasons Hotel Hong Kong avcjforum.com LAST CHANCE TO SAVE ON ADMISSION: SAVE UP TO US$600 Early Bird Expires on 12 September. SIGN UP NOW! Here is the snapshot of expert speakers: John Connaughton KEYNOTE Scott Kupor KEYNOTE Managing Director Managing Partner BAIN CAPITAL ANDRESSEN HOROWITZ

Weijian Shan Kok Yew Tang Susan Carter Group Chairman & Chairman & Managing Partner Chief Executive Officer Chief Executive Officer AFFINITY EQUITY PARTNERS COMMONDFUND CAPITAL PAG

Roy Kuan Yoshito Hori D Brooks Zug Managing Partner Managing Partner Senior Managing Director CVC ASIA PACIFIC LIMITED GLOBIS CAPITAL PARTNERS HARBOURVEST

Marcus Thompson Professor Oliver Katja Salovaara Chief Executive Officer Gottschlag Senior Portfolio Manager HEADLAND CAPITAL PARTNERS Associate Proffessor ILMARINEN MUTUAL PENSION HEC INSURANCE

H Chin Chou Renuka Ramnath Daniel Mintz Chief Executive Officer Founder Managing Director MORGAN STANLEY PRIVATE MULTIPLES OLYMPUS CAPITAL ASIA EQUITY

Jane Rowe Nisa Leung John Lewis Senior Vice President Managing Partner, Healthcare Chief Investment Officer PRIVATE TEACHERS CAPITAL QIMING UNITAS CAPITAL

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