[Platform Investment Sharp Decline]② 1st Generation Platform 11st, Forced M&A Sale

FI Including National Pension Fund Begins Forced Sale Process
Largest Shareholder SK Square Abandons Call Option, Cuts Losses on 11st
Valued at 2.7 Trillion Won Six Years Ago, Now Hard to Guarantee Even 500 Billion Won

Editor's Note"No more investments in the platform industry." The Chief Investment Officer (CIO) of a major investment institution firmly stated that the domestic platform industry is saturated and holds no investment value. They explained that platform-leading companies have been established in each sector, making further expansion or new entry difficult, thus lowering their value as investment targets. Reflecting this atmosphere, the first-generation platform 11st, whose valuation has dropped, was forcibly put up for sale in the mergers and acquisitions (M&A) market, and the stock prices of Kakao Pay and Kakao Bank, once hailed as "national hopefuls," have fallen to less than a quarter of their previous value. Toss, aiming to become a 10 trillion won decacorn, is preparing for an IPO, but concerns arise that it will merely serve as an "exit" channel for early investors. Even the thriving platforms have clear limits. Coupang, which has emerged as a new distribution powerhouse with growing influence, faces comprehensive checks from regulatory authorities and competitors. The investment industry is reluctant to invest in platform companies, fearing a second dot-com bubble-like crisis. The end for platform companies as investment targets is near.

Once dreaming of becoming the "Amazon of Korea," the first-generation e-commerce platform company 11st has been "forcibly summoned" as an M&A asset. Its "valuation" has dropped to one-fifth of what it was six years ago, and despite expectations from major investors such as the National Pension Service, even recovering the principal investment is uncertain.

"It's like a tenant selling the house to recover the deposit"

SK Square, the parent company of 11st, recently announced that the financial investors (FIs) have triggered a tag-along right, and the sale of 11st is currently underway. The FIs of 11st consist of the National Pension Service, MG Saemaeul Geumgo, and H&Q Korea, forming the Nine Holdings Consortium.

The consortium invested 500 billion won in 2018 to acquire an 18.18% stake in 11st. The National Pension Service invested 350 billion won, H&Q Korea 100 billion won, and Saemaeul Geumgo 50 billion won. The sale is being managed by Citi Global Markets Securities and Samjong KPMG.

The FIs, including the National Pension Service, secured a tag-along right allowing them to sell SK Square's 80.3% stake to a third party if the initial public offering (IPO) fails by September 2023. Additionally, if the tag-along right is exercised, the FIs have a "waterfall clause" that allows them to recover their funds first.

If the sale is successful, priority will be given to the investment principal plus an annual interest rate of 3.5%, totaling approximately 550 billion won. If the sale price exceeds 550 billion won, SK Square will take the difference. If it is lower, SK Square will not recover a single won.

SK Square has effectively "cut its losses" on its over 80% stake. It gave up exercising the call option to repurchase the shares. This overturned public expectations of "Surely they wouldn't give up." The reasons were lack of financial capacity and concerns that considering 11st's current corporate value, it could be a breach of fiduciary duty to shareholders.

They judged that investing 550 billion won was not worthwhile. An industry insider said, "To use a house analogy, SK Square is saying it cannot return the jeonse deposit," adding, "The tenant is trying to sell the house to at least recover the deposit."

11st's 'Valuation' 2.7 trillion won → 1 trillion won → 500 billion won

Six years ago, 11st's "valuation" was 2.7 trillion won. Based on this valuation, the 500 billion won investment corresponded to an 18.18% stake. At that time, the market even said, "Isn't this a bargain?" In 2017, 11st's transaction volume was about 9 trillion won, making it the industry leader among single platforms. It was twice the size of Coupang's 5 trillion won.

However, as the industry was reorganized into a duopoly between Coupang, which received 4 trillion won investment from SoftBank's Vision Fund, and Naver, which rapidly grew based on its portal, 11st went down the path of decline. As of 2022, market share was 24.5% for Coupang (1st), 23.3% for Naver (2nd), and 7% for 11st (4th).

11st posted losses for three consecutive years starting in 2020, with cumulative operating losses reaching 230.7 billion won during this period. The IPO naturally failed, leading to the push for a sale. In October last year, negotiations were held with Singaporean company Qoo10, which proposed about 1 trillion won, but the deal fell through due to SK Group's demand for a payment guarantee. Meanwhile, 11st's "valuation" further plummeted. It is now uncertain whether investors can even recover their principal.

Potential buyers for 11st include strategic investors (SIs) and existing e-commerce giants. These include Qoo10, which has already failed once in negotiations, global e-commerce leader Amazon, and China's Alibaba Group, which has a presence in the domestic market through AliExpress.

An industry insider said, "In a winner-takes-all structure centered on the big two (Naver and Coupang), the current 11st is not an attractive asset," adding, "Recovering the principal is absolutely not easy." He added, "From 11st's perspective, being acquired by an e-commerce company that can create synergy with its existing business would be the best outcome."

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