SK Networks on hunt for one billion-dollar M&A target

South Korea's SK Networks Co. is looking for an acquisition worth over 1 trillion won ($816 million) to accelerate its shift away from trading and rental services. 

Armed with 1.4 trillion won ($1.1 billion) in cash reserves, the unit of SK Group is reviewing several companies on the market, according to the company and industry sources with knowledge of the matter on Thursday.

"We have enough cash to buy a company worth over 1 trillion won," an SK Networks official told The Korea Economic Daily.

"We are looking for a target that should create synergy with our existing businesses."

Earlier this year SK Networks invested several tens of millions of dollars in two US startups to secure new business portfolios.

But a new acquisition in its mind will be much bigger in value and mark the culmination of its series of recent purchases, according to the sources. 

One billion-dollar purchase will help the company's pivot toward new growth areas, reducing its dependence on retailing and rental services. 

Established in 1953, SK Networks has been at the center of SK Group, the country's third-largest conglomerate. Starting as a general trading company, it serves as the sales channel of affiliate SK Telecom Co.'s mobile phones and operates five-star hotel Grand Walkerhill Seoul.

After taking over home appliance maker of Tongyang Magic Co. and car rental company AJ Rent-A-Car between 2016 and 2019, it has moved toward rental services. The two companies were renamed SK Magic and SK Rent-A-Car, respectively.

As of 2021, the trading division shrank to 24.1% of SK Networks' sales, versus 47.1% in 2017. The percentage will decline further as the company plans to abandon the trading business for steel products this year.

Its operating profit has held steady at 100 billion-150 billion won per year. Last year, SK Networks earned 122 billion won in operating profit on sales of 11 trillion won.

Aside from 1.4 trillion won in cash and cash equivalents as of end-2021, it has 935.3 billion won in short-term debt, most of which the company said would be covered by the 778.6 billion won in receivables from its customers.

Choi Sung-hwan, appointed as SK Networks' executive director last month, will be the driving force behind the company's M&A push. Born in 1981, Choi is the eldest son of ex-SK Networks CEO Choi Shin-won and a nephew of SK Group Chairman Chey Tae-won.

The millennial executive is the biggest individual shareholder of SK Networks with a 1.9% stake. The group's holding firm SK Inc. is the top shareholder with a 39.1% stake in the trading arm.

Last year, SK Networks was nearing a 1.1-trillion-won deal to buy best-selling mattress maker Zinus Inc. But its outside directors put the brakes on the talks at the last minute.

At the time, they questioned whether Zinus would fit into the company's strategy and advised SK Networks to find a more attractive target.

Zinus, better known as Amazon mattress, was acquired by Hyundai Department Store Group for 894.7 billion won ($734.8 million) last month.

Earlier this year, SK Networks invested $20 million in California-based biotech startup MycoWorks and joined $15 million in funding for US healthcare startup LVIS Corp.

Write to Kyung-Min Kang at kkm1026@hankyung.com
Yeonhee Kim edited this article.