Now is the right time, five years after recovering the investment...

Stuck due to performance decline, market cap plunge, and stock price drop...

According to the investment banking (IB) industry on the 20th, Lotte Insurance is currently up for sale and waiting for a new owner. Previously, JKL Partners invested a total of 730 billion KRW in 2019 to secure a 77% stake in Lotte Insurance. Despite efforts to improve management efficiency after the acquisition, they have not been able to overcome the industry's downturn and have failed to find a new owner for a year.

Lotte Insurance, Waiting for a New Owner with a Permanent Sale System

The industry believes that an exit for JKL Partners will not be easy. It is known that JKL Partners wants about 2 trillion KRW for the sale of Lotte Insurance, but the market values it lower than this. Currently, Lotte Insurance's market capitalization stands at 571.6 billion KRW. The stock price has also been sluggish. Since the beginning of this year, it has fallen about 10%, closing at 1,842 KRW on this day.

Hanssem, which marks the fifth year since management control was transferred to IMM Private Equity (IMM PE) this year, is facing similar difficulties. IMM PE acquired management control of Hanssem in 2021, purchasing a 27% stake in the company together with Lotte Shopping for 1.4513 trillion KRW. At that time, Hanssem's stock price was 221,000 KRW per share, but on this day it was traded at 46,800 KRW.

Hanssem, Sales Stagnation and Gongcha Korea Profitability Deterioration

IMM PE tried to turn things around by appointing Kim Yoojin as CEO of Hanssem in 2023, but the situation remains difficult. After recording its first operating loss since its founding in 2022, Hanssem managed to return to profitability for two consecutive years, but sales stagnation has continued due to the prolonged industry downturn. Sales have declined for three consecutive years. As a result, the industry expects IMM PE to attempt to recover its investment through dividends. Last year, the Sangam office building was sold to Gravity Asset Management for 320 billion KRW, and the proceeds were poured into dividends.

The industry is also paying attention to Gongcha Korea, which was rumored to be up for sale in 2023. In 2019, TA Associates acquired Gongcha Korea from UCK Partners for 350 billion KRW. At that time, Gongcha Korea's EBITDA was 57.5 billion KRW. However, in 2023, Gongcha Korea's EBITDA dropped to 17.9 billion KRW. Profitability has also declined significantly. In 2023, operating profit was 6.4 billion KRW, down 61% from 16.7 billion KRW in 2022. As a result, Gongcha Korea is focusing on expanding profitability through strengthening its global capabilities.

When will the investment be recovered... The calculations are getting more and more complicated...

The reason the industry is paying attention to these companies is that, typically, private equity funds attempt to increase corporate value through restructuring, cost reduction, and profitability improvement within 3 to 5 years after acquiring a company, and then try to sell it. Considering market volatility, this is usually the optimal period to recover investments. After this period, limited partners (LPs) often put pressure on for capital recovery.

Acquisition financing is also a concern. In the process of acquiring management control, acquisition financing is used along with equity investment, and the loan maturity is generally set between 3 and 5 years. If the final portfolio exit is not achieved before maturity, the burden of interest costs becomes inevitable.

An industry official explained, "If the sale process takes longer than expected, there is a significant possibility of recovering investment through dividends or additional capital reductions," adding, "Since there is a possibility of interest rate cuts, companies are unlikely to be disposed of hastily at below fair value."