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Korea's beauty chain pre-IPO attracts PEFs

By Oct 15, 2020 (Gmt+09:00)

South Korea's largest health and beauty franchise CJ Olive Young has received preliminary bids from around seven participants including global and domestic private equity firms in its pre-IPO placement, according to the M&A industry on Oct. 15.

The list of named bidders includes US private equity firm TPG Capital and Korea-based PEFs Hahn & Company as well as IMM Private Equity.

The stake amount has not been specified, but will likely be in line with the general pre-IPO financing range of a 20-30% stake. The H&B arm under CJ Group is planning to list in 2022. 

CJ Group Chairman Lee Jay-hyun’s son and heir apparent Lee Sun-ho, alongside the chairman's brother Lee Jae-hwan, will put their shareholdings up for sale. Financial circles expect the junior Lee to use the funds to purchase additional shares in the CJ Group to fortify his succession.

While the preliminary bid is off to a good start, it is questionable if the bidders will actually complete the process since financial investors will be dealing with individual family owners instead of CJ Group. Financial investors are likely to request a shareholders' agreement that will guarantee the IPO or a successful exit before committing to the deal.

Also, the newly changed EBITDA may have a considerable impact on the buyers' willingness to finalize the deal as it will affect the company's valuation. Under the new accounting standard, the company's rent for 1,000 stores nationwide will be processed as a non-operating expense, making the operating profit appear higher than its actual amount.

"The discrepancy in the profitability index appears to be significant, and management rights are not included in the deal, which will make it difficult to increase value after the company is acquired," said a PEF source.

CJ Olive Young reigns supreme in Korea’s health and beauty industry with 70% market share. It is also a subsidiary of family-controlled holding company CJ Corp. Chairman Lee is the biggest shareholder of CJ Corp. with a 42.07% stake, and the National Pension Service is the second-biggest shareholder with a 9.96% stake.

CJ Olive Young posted 365.9 billion won ($308.3 million) in revenue with an operating profit of 16.6 billion won in 2019.

Write to Ri-ahn Kim and Jun-ho Cha at

Danbee Lee edited this article.

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