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[Exclusive] Deals

Biggest deal in Korea: Hanon Systems stake sale draws KKR, Carlyle, TPG

By May 16, 2021 (Gmt+09:00)

Courtesy of Hanon Systems
Courtesy of Hanon Systems

The sale process of a near-70% stake in South Korean auto parts supplier Hanon Systems Corp. has kicked off, attracting a pool of strategic investors and global private equity firms such as KKR, Carlyle and TPG. The deal is expected to fetch around 7 trillion won ($6.2 billion), making it the largest acquisition in Korea's M&A history.

According to the investment banking industry on May 14, joint sale managers Morgan Stanley and Evercore recently issued an information memorandum to potential bidders with preliminary bidding slated for mid-June.


The Hanon stake for sale is in the 69.9% range, including the 50.5% stake held by its largest shareholder Hahn & Co. and the 19.49% stake held by its second-largest shareholder Hankook Tire & Technology Co., which will be exercising its tag-along rights, or "co-sales" rights, meaning both companies can re-sell the purchased stake simultaneously.

The two firms had acquired their combined stake in Hanon from Visteon Corp., a US automotive electronics supplier, for 3.8 trillion won in 2014. 

Based on Hankook Tire's tag-along rights, a partial stake will be sold at a ratio of 5:2. For example, if a 40% stake in Hanon is sold, then Hahn & Co and Hankook Tire will sell a 28% and 12% stake, respectively.

Hanon manufactures and sells a wide range of products, including air conditioners, heaters, cooling modules and compressors. The company is the world's No. 2 thermal management systems supplier for automakers.

In electric vehicle era, superior thermal management systems are essential to regulate energy efficiency. The growing EV market is expected to increase demand for Hanon's battery thermal management systems.

Hanon System's battery-powered heater
Hanon System's battery-powered heater

Hanon's high-profile client portfolio is another attractive factor. Its clients include Korea's leading automakers Hyundai Motor Co. and Kia Corp., alongside global auto firms such as Ford, Volkswagen, GM and Tesla. 


Global auto parts suppliers looking to offset plummeting diesel car demand are likely to take interest in the Hanon deal, which is why the world’s fifth-largest auto parts supplier Continental Automotive has been named a potential bidder.

Also, the country's fourth-largest conglomerate LG Electronics Inc. is expected to join the bid. The company has identified the EV auto parts industry as a main growth driver after exiting from its loss-making mobile phone business. Last year, LG Electronics entered a $1 billion joint venture with Magna International Inc. to develop EV components and boost its footing in the EV market.

It is understood that Carlyle has approached LG Electronics to set up a consortium, which would make it the most competitive bidder. Meanwhile, KKR recently closed its $15 billion Asian fund IV, securing enough capital to acquire Hanon.

Korea's Halla Group may also consider acquiring a partial stake by joining forces with other PE firms or strategic investors.

Biggest deal in Korea: Hanon Systems stake sale draws KKR, Carlyle, TPG


The biggest hurdle will be the high price. The company’s market capitalization last Friday (May 14) stood near 8.6 trillion won, valuing its 70% stake at around 6 trillion won. The price could even reach between 7 trillion won to 8 trillion won, including the management premium, according to the investment banking industry.

If competition heats up, Hanon's majority stake sale is likely to become the largest deal in Korea's M&A history, topping PE firm MBK Partners' 7.2 trillion won acquisition of retail chain Homeplus in 2015.

But the outlook isn't so rosy.

“The industry frontrunner Denso's price to earnings ratio stands at 15 times, but we have to justify Hanon's PE ratio of 27 times at the global investment committee. There isn't a proper logic, which is raising concerns,” said a PE firm official who is considering joining the bid.

Another M&A industry official pointed out that the deal would've drawn a larger pool of bidders if it was priced lower, in the 3 trillion won range, considering there aren't many firms that can consider purchasing a stake worth 6 trillion won.

Also, the company's earnings outlook for this year doesn't look too bright given the recent automobile chip shortage and shipping delays. Hanon's target EBITDA of 1 trillion won was pushed back last year due to the COVID-19 crisis, and if the company fails to achieve it this year it could create doubt among buyers. 

Write to Jun-ho Cha at

Danbee Lee edited this article.

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