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MBK Partners

MBK sees "golden window of opportunity" in N.Asia in 2021

By Apr 12, 2021 (Gmt+09:00)

MBK Partners' founder and partner Michael ByungJu Kim
MBK Partners' founder and partner Michael ByungJu Kim
North Asia-focused MBK Partners is betting on economic recovery this year and will diversify its consumer-oriented portfolio with export-driven companies, its founder and partner Michael ByungJu Kim said last week.

"We begin the new year with a focus on recovery," Kim said in his annual newsletter dated on Mar. 12. "Cash is king, and never more so than in a recovering market." 

MBK holds over $6 billion in dry powder, or undeployed capital, after it raised $6.5 billion in its fifth buyout fund in May 2020. It also launched its second special situations fund late last year to raise $1.25 billion. 

"As a group, we know from experience that there is a two-year window following a crisis when opportunities with outsized returns proliferate. We see this as a 'golden window of opportunity' opening across North Asian markets this year. This is the time to make investments."

The first target of MBK's fifth buyout fund is Japan's Tsukui Holdings Corp. Early this year, the fund launched an offer to acquire the leading nursing care provider for over $350 million in equity, according to MBK.

"We still believe consumption represents more attractive and long-term stable growth in our markets. But we aim to enhance our portfolio diversification by adding more export-oriented plays to the mix," said Kim.

When investing in the consumer sector, the private equity firm will take into account technology elements such as big data and digitalization, he added. 

(Courtesy of Tsukui Holdings Corp.)
(Courtesy of Tsukui Holdings Corp.)
Last year, the stronger-than-expected snapback in public markets from the pandemic-caused economic contraction drove valuations for private market deals higher and led to lower deal volume in North Asia, as well as curtailed exits.

In the face of the challenging investment environment, MBK prioritized add-on investments to its portfolio companies in 2020.

For its portfolio companies with a heavy domestic consumption emphasis, MBK accelerated online channel expansion, bolstered marketing and back-office digitalization and initiated cost savings programs across the portfolio. As an example, Homeplus in Korea has been transformed into an integrated online-offline retail operator.

"We believe one change that is here to stay is digitalization in our businesses – in procurement, marketing, distribution and payment. ... We consider tech elements – big data analytics, competitive disruption risk, convergence opportunity, digitalization cost savings – in every investment we pursue."

Last year, MBK Partners deployed $1.7 billion of capital in 11 investments across buyouts and special situations in total. From divestments, it secured and distributed $3.6 billion in proceeds, including pending proceeds, to its limited partners (LPs). That exceeds its 2019 payout and represents the second-highest annual payout in its history.

 MBK Buyout Funds' recent investments and 2021 investment proposal
 Company  Investment Amount
 Golfzon Country (in Korea)  $334.6 million
 Accordia Next Golf (in Japan)
 Siyanli (in China)
 CAR Inc. (in China)  Over $600 million
 Tsukui Holdings (in bidding process)  Over $350 million

 MBK Special Situation Fund's recent investments
 Company  Investment Amount
 CGI Holdings  $108.8 million
 Three Hong Kong property-related bonds or loans.  $80.1 million
 Accordia Next Golf (in add-on investment)  $7.5 million
 CAR's convertible bonds  $187.4 million

 MBK Buyout Funds' Exits and Returns in 2020
Company  Exit Method Proceeds Multiple of Equity IRR
 Daesung Industrial Gases (in Korea)  Divestment  $1.2 billion  2.1  31.5%
 Hong Kong Broadband Network  Partial divestment and leveraged recapitalization  $114.5 million  N/A  N/A
 Doosan Machine Tools (in Korea)  Leveraged recapitalization  $449.8 million  N/A  N/A
 Apex Logistics (in China)  Divestment  $753 million  4.5  36.9%

SPECIAL SITUATIONS FUNDS

Its first special situations fund that raised $850 million in 2018 has deployed $878 million in 11 investments over the past three years, and already returned $1.05 billion to its LPs reaped from five divestments, which generated a 68.5% IRR.

The global pandemic led the private equity firm to reexamine the way it does business and how to respond to the pandemic-induced changes in its investment strategy and value creation practices.

"We asked Socratically: What are the permanent or structural changes in this environment, and what changes are temporary?" Kim said in the letter.

 MBK Special Situation Fund's Exits and Returns in 2020
 Exit Method  Proceeds  Multiple of Equity  IRR
 OCI (in Korea)  Divestment  N/A  1.24  19.4%
 BHC (in Korea)  Partial divestment  $782.4 million  3.6  140.3%

Currently, MBK manages over $23.5 billion in capital. During its 16-year history, it has made 51 investments and distributed a total of $14.4 billion in proceeds to LPs and co-investors in 29 divestments. The private equity firm said the proceeds were the largest among Asia-based investment firms.

Its four investment funds chalked up an absolute return of 2.4 times equity with an average IRR of 27.5% as of the end of last year. 
 
 Absolute Returns of MBK funds as of the end of 2020
 Fund  Multiple of Equity  IRR
 Second Buyout Fund  2.9  26.1%
 Third Buyout Fund  2.7  24.2%
 Fourth Buyout Fund  2.0  40.5%
 First Special Situations Fund  2.2  53.5%

Earlier this year, MBK lost to Affinity Equity Partners in a competition for the entire stake in South Korea’s top recruitment portal JobKorea, a deal estimated at about 800 billion won.

In late March, MBK was shortlisted to join the final race for eBay Korea, along with three Korean bidders -- SK Telecom, Shinsegae and Lotte.

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

Yeonhee Kim edited this article.

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