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MBK beats TPG to buy Korean industrial gas supplier for $1.7 bn

Feb 19, 2017 (Gmt+09:00)

MBK Partners, Asia’s biggest private equity firm, has offered close to 2 trillion won ($1.7 billion) to buy South Korea’s second-largest industrial gas supplier, knocking the nearest rival TPG Capital out of what could have been its first acquisition in the country over a decade.

With TPG giving up its last-minute bid for Daesung Industrial Gases Co. Ltd. in the progressive auction, MBK will be named as a preferred buyer as early as this week and get down to negotiations on details of the acquisition, investment banking sources said on Feb. 16.

In the early-stage competition for the gas company, Hong Kong-based private equity house PAG and South Korean strategic buyers such as SK Group had participated.

But as competition propelled the bidding price higher, strategic buyers pulled out of the race and the bidders narrowed down to MBK, TPG and PAG.

PAG had placed the highest bid among the three private equity firms, but was dropped out of the race because it scored low on the probability of deal closing.

If the transaction goes through, South Korea-based MBK will acquire the whole of Daesung Industrial from Goldman Sachs’ private equity arm PIA and Daesung Group Partners Co. Ltd.

PIA owns 48.45% of the gas supplier after taking over a controlling stake in the company in 2014 for $400 million. Daesung Group, the parent company of Daesung Industrial, holds a 40% stake.

“MBK made another big bet to cut off the entry of global private equity funds to the local large-sized buyout market,” said one of the investment banking sources.

The 2 trillion won offer by MBK includes the debt of 750 billion won owed by Daesung Industrial. It follows MBK’s acquisition of Doosan Machine Tools Co. Ltd. for around 1.1 trillion won in 2016, and the purchase of the South Korean business of Tesco for 7.2 trillion won in 2015.

MBK has jumped in the bidding race for Daesung Industrial, shortly after it raised $4.1 billion for its fourth Asia-focused fund late last year.

For TPG, the bidding for the South Korean gas supplier was headed by Sanghoon Lee, an ex-Morgan Stanley executive and the elder son of a former Samsung Electronics vice chairman and CEO, who was named as the head of the US-based investment firm's South Korean operations in August 2016.

TPG is in the process of raising $4 billion for its seventh Asia fund.

Daesung Industrial produces industrial gas, used in a range of basic industries, including steel, petrochemical, LCD, electronics and medical industries.

Industrial gas business requires sophisticated technology and heavy facility investment, so it has high entry barriers. The oligopoly in South Korea’s industrial gas market adds to its attractiveness as a stable asset.

Daesung Group had put its 40% stake in the gas supplier up for sale to shore up financial conditions, together with the stake held by Goldman Sachs’ PIA.

In 2015, Daesung Industrial posted 53.9 billion won in operating profits against sales of 581.1 billion won. Earnings before interest, tax, depreciation and amortization (EBITDA), a good proxy for cash flows, came to 150 billion won in 2016.

Goldman Sachs lead managed the sale.

By Chang Jae Yoo and Dongwook Jwa

Yeonhee Kim edited this article

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