Bubble Concerns Emerge Ahead of IGIS Asset Management Sale: Is 800 Billion Won a Fair Price?

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As the final bidding for IGIS Asset Management, the top real estate-focused asset management firm in Korea, approaches, disagreements over its enterprise value (EV) are growing in the market. Industry insiders point out that, in the case of real estate fund management companies, asset values are highly volatile and most earnings are dependent on performance fees, making it difficult to evaluate them using the same standards as traditional asset management firms.

According to the investment banking (IB) industry on October 30, Morgan Stanley and Goldman Sachs, the sale managers, plan to conduct the final bidding on November 11. While the managers have suggested an enterprise value of approximately 800 billion won, potential buyers are struggling with the valuation. This is because it is the first time an independent real estate-focused asset manager of this scale has come to market and the first time a controlling stake is being sold, making the valuation methodology unclear.

The stake for sale amounts to about 70%, held by financial investors (FIs) including the largest shareholder, Sohn Hwaja (12.4% stake). After the preliminary bidding in August, domestic financial firms such as Hanwha Life and Heungkuk Life, as well as Hillhouse Investment (formerly Hillhouse Capital, an overseas private equity fund) and CapitaLand (a Singapore-based real estate asset manager), were shortlisted as qualified bidders. MBK Partners initially showed interest but is reportedly not actively pursuing the deal.

The 800 billion won valuation proposed by the sale managers is based on applying a multiple of 9 to IGIS's EBITDA of 89 billion won as of the end of last year. However, many in the industry argue that a simple EV/EBITDA multiple does not adequately reflect the intrinsic value of a real estate asset manager.

Unlike traditional asset managers, IGIS Asset Management combines elements of both an asset manager and a real estate developer. Since most of its assets under management are real estate funds, its earnings are highly sensitive to market trends, transactions, and development cycles. This is structurally different from traditional asset managers, which typically generate stable, recurring earnings from predictable management and operation fees.

In reality, IGIS's earnings have been a "roller coaster." Operating profit surged from 39.3 billion won in 2020 to 114.4 billion won in 2021 and 175.7 billion won in 2022, but then plummeted to 72.3 billion won in 2023. Of last year's 418.3 billion won in operating revenue, fee income accounted for 64% (237.5 billion won), with transaction-related one-off fees such as acquisition, disposition, and performance fees totaling 108.5 billion won-nearly half of the fee income.

The remaining management fees (129 billion won) also differ from typical "stable management fees." About 30 billion won of this comes from development project fees, which can easily decline if projects are delayed or the economy slows. Excluding these, IGIS can barely cover its total compensation (including salaries, retirement benefits, and welfare) of 99 billion won with only stable fees.

An IB industry insider commented, "Real estate funds fundamentally use leverage, so if real estate values fall, the net asset value (NAV) drops even more sharply. The high proportion of performance fees also means there is less stability in terms of consistently generating operating profit."

There are also significant concerns about organizational stability after the acquisition. IGIS's highly volatile earnings have essentially been driven by the networks and deal-sourcing capabilities of its key personnel. If the new owner significantly changes the company's corporate culture or investment philosophy, there is a significant risk that key management staff could leave. The prevailing view in the market is that, in such a case, the company could be left as an "empty shell."

Given that there are already differences in price expectations between strategic investors (SIs) and financial investors (FIs), fierce negotiations over the price are expected between each bidder and the sellers. An industry source noted, "If you divide the 800 billion won EV, which is based on the fee-related earnings (FRE) method, the multiple comes out to 18-25 times, which is quite expensive. For independent managers like IGIS, where the founder played a significant role in its growth, the management premium could actually turn into a 'negative premium.'"

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