"Optimistic About Investment for the Next 3 Years"…Active Portfolio Adjustments in Private Equity Funds

Recovery of Investment Funds from Existing Portfolio Companies... Efforts Also Focused on New Fundraising
VIG Partners Pursue Sale of FriedLife, Macquarie PE Pushes UTK Tank Terminal Sale
JKL Partners Accelerate Sale of Lotte Insurance... Blackstone Advances Sale of GeoYoung

Portfolio adjustments by private equity firms at the forefront of the capital market are active. Despite several negative factors such as high oil prices, high interest rates, and geopolitical risks, institutional investors have recently shown optimism about the investment market. Riding on this optimism, private equity firms are both recovering investments from existing portfolio companies and focusing on new fundraising efforts.

According to the investment banking (IB) industry, VIG Partners is currently pursuing the sale of its portfolio company, funeral service provider Freed Life. VIG Partners selected Bank of America (BoA) Securities as the lead underwriter for the sale and began the sales process last month. An IB industry insider said, "Various potential investors from both domestic and international markets have shown interest, so a successful sale is expected."

This successful investment recovery is expected to support the fundraising of the 5th blind fund. VIG Partners started its funeral service business by investing in Good Life through a blind fund in March 2016. Later, in 2020, it acquired Freed Life using the 4th blind fund and expanded its scale by merging funeral service companies such as Good Life, Geumgang Culture Hub, and Modern General Funeral Services.

Thanks to this aggressive bolt-on strategy, Freed Life secured a stable market position and profitability. Freed Life surpassed 2 trillion KRW in advance payments this year, becoming the first in the industry to do so just three years after securing 1 trillion KRW in 2020. Advance payments are an indicator used to evaluate the scale of prepaid installment transaction companies such as funeral service providers. Freed Life's sales last year were 182.9 billion KRW, and operating profit was 30.9 billion KRW, increasing by 25% and 38% respectively compared to the previous year.

VIG Partners invested a total of approximately 300 billion KRW in Freed Life. As a leading company in the industry, the market expects a sale price in the trillion KRW range. The success of Freed Life's sale is crucial for raising funds for the next fund. Currently, VIG Partners is raising the 5th blind fund with a target of 1.5 trillion KRW. The first closing is scheduled for the fourth quarter of this year, with final closing expected next year.

JKL Partners is pushing for the sale of a 77% stake in Lotte Non-Life Insurance. In 2019, it acquired management rights of Lotte Non-Life Insurance from Lotte Group for 373.4 billion KRW and subsequently participated in a paid-in capital increase worth 360 billion KRW, investing a total of 733.4 billion KRW to secure a 77% stake. With the expiration of the 'Lotte' brand usage rights in 2024 and the maturity of acquisition financing, the goal is to sell the stake by October next year.

Potential buyers include Shinhan Financial Group, Hana Financial Group, and Kyobo Life Insurance. An IB industry insider hinted, "Interest is coming not only from domestic but also European financial firms and others." Lotte Non-Life Insurance's predecessor was Daehan Fire & Marine Insurance, based in Busan and established in 1946. It was acquired by Lotte Group in 2008 and rebranded as Lotte Non-Life Insurance. In 2017, Lotte Holdings was established, and due to the Fair Trade Act and the principle of separation of commerce and finance, it was sold to JKL Partners in 2018.

JKL Partners restructured Lotte Non-Life Insurance's product portfolio to focus on long-term guaranteed insurance. They adopted a strategy to enhance intrinsic value rather than expand scale, simultaneously conducting large-scale voluntary retirements and improving asset portfolio soundness. Lotte Non-Life Insurance recorded a net profit of 119.9 billion KRW in 2021, successfully returning to profitability. However, it reverted to a net loss of 63.1 billion KRW in 2022.

Blackstone has selected Morgan Stanley as the lead underwriter to proceed with the sale of management rights of domestic pharmaceutical distribution company Geo Young. The market values Geo Young's sale price at up to 2 trillion KRW, with global private equity funds mentioned as potential buyers. Established in 2002, Geo Young is the top pharmaceutical distribution company in terms of sales, securing about 80% of domestic pharmacies as clients. It was the first in the industry to introduce an online pharmaceutical ordering system.

Based on its core competency in pharmaceutical distribution, Geo Young is expanding into new businesses such as medical device purchasing agency, healthcare IT, and pharmaceutical logistics. Last year, it recorded sales of 2.8605 trillion KRW and operating profit of 60.2 billion KRW, increases of 16.8% and 7.7% respectively compared to 2021. Blackstone acquired management rights shares from Anchor PE in 2019 and, entering its fourth year, has begun recovering its investment. Previously, Blackstone considered an initial public offering (IPO) for investment recovery but shifted to management rights sale considering market conditions.

Macquarie PE is pushing to sell 100% of its shares in United Terminal Korea (UTK), acquired in 2017, for about 400 billion KRW. UTK operates fuel storage facilities located at Ulsan Port. UTK was established when Macquarie PE acquired 100% of Taeyoung Horizon Terminal Korea shares from Taeyoung Group and the United Arab Emirates (UAE) state-owned oil company Emirates National Oil Company (ENOC) in 2017.

UTK's main competitive advantage lies in its state-of-the-art automated facilities, enabling rapid logistics processing and 24-hour inbound and outbound operations through automation of storage tank equipment. UTK is the only portfolio company of the 'Macquarie MKOF 3 Fund,' formed in 2014 with approximately 745 billion KRW, that has not yet undergone investment recovery. It is known that multiple private equity funds are considering acquisition.

Since acquiring UTK, Macquarie PE has increased total storage capacity from 230,000㎘ to 468,000㎘ by completing additional tank terminals. It has also expanded its scale by acquiring nearby tank terminals. Macquarie PE's desired sale price of 400 billion KRW is calculated by applying a 16x investment multiple to UTK's 2022 consolidated EBITDA of 25 billion KRW.

Meanwhile, the Boston Consulting Group recently conducted the '2023 Global Investors Survey' targeting representatives of institutions managing assets exceeding 20 trillion USD. The survey revealed that investors hold an optimistic outlook on the capital market for the next three years. Investors' medium-term outlook and market return expectations were the highest since the survey began in 2009. An IB industry insider said, "Although concerns about high interest rates and recession risks remain in the short term, market expectations are higher than ever."

This content was produced with the assistance of AI translation services.