VIG taps KDB financing to buy 40% stake in Kakao Mobility

South Korea’s private equity firm VIG Partners’ buyout of minority stakes in Kakao Mobility Corp., the nation’s most popular taxi-hailing app operator, is set to pick up speed as the country’s state-run Korea Development Bank (KDB) is expected to finance the acquisition.

According to sources in the investment banking industry on Wednesday, KDB and other top-tier Korean lenders are said to be in the final stages of review for financing the VIG Partners-led consortium’s acquisition of a more than 40% stake in Kakao Mobility.

The Seoul-based PE firm specializing in mid-market buyouts has been seeking to buy Korea’s largest taxi-hailing app operator’s stakes from the latter’s current minority shareholders – TPG’s 29.04%, Carlyle’s 6.18% and the Korea Investment & Securities-ORIX PE consortium’s 5.35%.

The VIG consortium estimates the mobility app operator’s enterprise value at about 5 trillion won ($3.4 billion) and plans to inject more than 2.5 trillion won to take over the stakes.

Of its total spending, about 1 trillion won will be funded by acquisition financing, and KDB is expected to be responsible for the largest share of about 300 billion won.

Shinhan Bank also plans to join the creditor group.

VIG Partners also plans to use some of its fifth blind fund, which raised 600 billion won in the first funding round, to finance the buyout, while seeking to jointly pool the remaining funds with limited partners at home and abroad.

The buyer's side is said to have completed due diligence on Kakao Mobility and other major buyout processes, intending to sign a buyout contract in April.

MANAGEMENT CONTROL

VIG and its co-investors initially planned to control the management of Kakao Mobility, but changed the original plan to take over the financial investors’ stakes.

Kakao Corp., the operator of Korea’s most widely used messenger app KakaoTalk, holds the largest 57.3% stake in the mobility app operator.

A series of legal issues involving Kakao Mobility and its parent company are also said to have affected the buyer’s decision to step away from management control.

Kakao Mobility has been investigated by the country’s prosecutors, financial authorities and antitrust watchdog over allegations of unfair business practices and window dressing.

Last October, the Korea Fair Trade Commission (FTC) fined Kakao Mobility 72.4 billion won for allegedly violating competition laws.

SOLID BUSINESS PERFORMANCE

After taking over the shares held by the FIs, the VIG is expected to discuss a management takeover deal with Kakao Mobility, according to industry observers.

The buyout firm is pinning high hopes on Kakao Mobility thanks to the mobility app’s handsome profit-generating ability.

Kakao Mobility has essentially become Korea’s monopoly taxi-hailing app, boasting over 90% market share, after its prominent rival Tmap Mobility pulled out of the country's taxi-hailing market.

Its earnings have steadily improved in recent years, too.

Kakao Mobility reported 62.2 billion won in operating profit for the January-September period of 2024, already surpassing its whole-year profit of 38.7 billion won in 2023.

Founded in 2005, VIG Partners, formerly Vogo Investment Group, has managed $3.5 billion of committed capital with investments in 29 portfolio companies in Korea.

In 2023, it took over Korean low-cost carrier Eastar Jet Co.

It sold off its entire stake in the Korean operations of Burger King to Hong Kong-based Affinity Equity Partners for $170 million in 2016, generating a return of 2.5 times its original investment.

Write to Jun-Ho Cha at chacha@hankyung.com

Sookyung Seo edited this article.