Blackstone seeks medicine distributor sale for 1st Korea exit

Blackstone Inc. has embarked on the process of selling South Korea’s largest medicine wholesaler Geo-Young Corp., a deal estimated at up to $1.4 billion, in what would be the US investment firm’s first exit from a South Korean asset, according to people with knowledge of the matter on Wednesday.

It recently sent requests for proposal to investment banks to pick underwriters for the proposed deal. It is being put on the market four years after Blackstone purchased a 71% stake in Geo-Young at an enterprise value of 1.1 trillion won from Seoul-based Anchor Equity Partners in 2019.

Now it estimates the pharmaceutical distributor’s value at 1.8 trillion to 2 trillion won, about twice the 2019 valuation.

Blackstone controls 99.17% of Geo-Young in a consortium with its two co-founders Cho Hae-sun and Lee Hee-koo. Cho, who has been managing the company as chairman, has a 22% stake, while the other founder and honorary Chairman Lee holds a 7% stake.

It is uncertain yet whether the two co-founders will join Blackstone to sell their combined 28% stake and relinquish their leadership roles.

PANDEMIC BENEFITS

Geo-Young controls about 80% of the domestic medicine and medical device distribution market. By revenue, it is South Korea’s largest pharmaceutical and biopharmaceutical company.

During the pandemic, it further solidified its market dominance as an almost monopolistic distributor of masks.

Under Blackstone, the company has bulked up through bolt-on acquisitions. In 2020, it purchased Duchembio Co., a domestic radiography device maker for diagnosing different forms of cancer, Alzheimer's disease and Parkinson’s disease.

Early this year, it bought a 25% stake in Baek Je Pharmaceutical Co.

It is now looking to expand to the cosmetics and nutritional supplement markets.

Its operating profit shot up 40% to 76.1 billion won on a consolidated basis in 2020, compared to 2019. Sales were up 42% to 4.2 trillion won during the period.

After a dip in 2021 results, its earnings bounced back last year.

Geo-Young is deemed an attractive target thanks to the growth potential for the pharmaceutical industry and its market leadership, as well as a steady stream of cashflow.

But some private equity firms are challenging its valuation, questioning whether or not its 2020-2022 results were a short-lived boost from COVID-19-related sales.

Geo-Young was established in 2002 by former pharmacist Cho Sun-hae and ex-sales manager of Daewoong Pharmaceutical Co. Lee Hee-koo.

If Blackstone divests of Geo-Young, it will come into the hands of a fourth majority owner.

Back in 2009, Goldman Sachs PIA invested 400 billion won in Geo-Young. The proceeds helped it build nationwide logistics and sales networks.

Geo-Young also has acquired a slew of smaller competitors, including an SK Networks Co. arm, consolidating the then-fragmented pharmaceutical distribution market.

In 2013, the company was handed over to Anchor Equity Partners, set up by ex-Goldman Sachs banker Ahn Sang Gyun, who had been responsible for Geo-Young during his stint at the US bank.

With $880 billion in assets under management, Blackstone has not stood out in South Korea’s M&A scene.

Its attempt in 2021 to exit Simone Ace. Collection Ltd. through an initial public offering faltered due to weak investor demand.

Back in 2015, it invested $300 million in Simone Ace. at a valuation of 1 trillion won. It supplies handbags for Michael Kors, Marc Jacobs and Coach as an original development manufacturer.

The divestment proceeds from Geo-Young could be put into new acquisition targets in the country, industry watchers said.

Last year, Blackstone opened a Seoul office to improve communication with South Korean companies and authorities. 

Write to Jun-Ho Cha at chacha@hankyung.com
Yeonhee Kim edited this article.