Skip to content
  • KOSPI 3140.51 +10.42 +0.33%
  • KOSDAQ 1046.12 +6.69 +0.64%
  • KOSPI200 410.99 +1.77 +0.43%
  • USD/KRW 1169.1 -2.60 -0.22%
  • JPY100/KRW 1,065.58 -6.08 -0.57%
  • EUR/KRW 1,375.56 -9.21 -0.67%
  • CNH/KRW 181.9 -0.03 -0.02%
View Market Snapshot

Music & Entertainment

Lessons learned from Blackpink label's M&A flops

K-pop engines, including BTS label HYBE, can learn a thing or two from YG Entertainment’s business failures

By Jul 29, 2021 (Gmt+09:00)

Lessons learned from Blackpink label's M&A flops

South Korea-based YG Entertainment Inc., the label behind popular K-pop girl group Blackpink, is pushing to sell off its profitable golf business in a move to return to its roots: making music and managing artists.

According to the investment banking industry on July 28, YG is seeking to sell a 100% stake in Greenworks, operator of Korea's top golf booking platform, XGolf. The Blackpink label acquired Greenworks from private equity firm VIG Partners for 31.5 billion won ($27.5 million) in 2017.

Last year, Greenworks logged revenue of 11.2 billion won ($9.8 million) and an operating profit of 3.2 billion won -- modest growth compared to posting revenue of 9.8 billion won and an operating profit of 2 billion won in 2017 when it was acquired by YG.

Greenworks is considered to have growth potential alongside golf's rising popularity among twenty and thirty-somethings in addition to its golf booking service being offered on the country's top platform, Naver Corp.

But industry watchers say that YG may not fetch the price it desires given the arrival of new competitors such as KakaoVX, a golf unit under mobile giant Kakao Corp. Greenworks' price tag is expected to hover around 40 billion won.

CLOSING THE CHAPTER

YG is no stranger to M&As as the label has aggressively diversified its business portfolio to include beauty, restaurants, finance and golf companies over the past five years.

Despite its efforts, YG has failed to achieve much success in these ventures with most of the companies either being liquidated or put up for sale. The sale of Greenworks marks the last in YG's series of M&A flops.

But there's a silver lining. YG's M&A failures offer a valuable lesson to other K-pop companies including HYBE Co., the label behind BTS.

HOPING TO REVISIT ITS GLORY DAYS

YG's glory years spanned between 2014 and 2017. During this period, YG was thought to have the Midas touch as everything it touched seemed to turn to gold. 

The company's megastar boy band Big Bang was at the height of its fame, sweeping charts and its members emerging as K-pop idols worldwide. Big Bang was YG's main source of revenue and the group's international success and influence attracted a flood of investors hoping to ink deals with YG.

Before BTS, there was Big Bang.
Before BTS, there was Big Bang.

In 2014, YG raised around $80 million from Louis Vuitton Moet Hennessy (LVMH) Group's private equity arm L Capital and in 2017, the company entered a partnership with Naver and raised 100 billion won.

But while YG sat on piles of cash, it was desperately seeking something fresh to fill Big Bang's shoes since the group's members had to fulfill their mandatory military service, meaning there would be several years of inconsistent revenue if management focused too much on K-pop. 

This led to a series of M&As. In 2014, the label acquired PR agency Phoenix Holdings from Bogwang Group for 50 billion won and rebranded it as YG Plus. In the same year, YG also acquired Codecosme International Co. from cosmetics company Coson Co. for 5 billion won to tap into the beauty industry, launching cosmetics brand Moonshot.

In 2015, YG collaborated with Noh Hee-young, a former executive director from CJ Group, to take on the food and beverage industry. Noh was made the chief executive of YG Foods and under her leadership, YG rolled out multiple F&B brands including barbecue restaurants. 

But YG didn't stop there. The label even forayed into the financial sector by setting up an investment arm, YG Investment, and continued to launch various businesses such as cafes, modeling agencies and clothing brands.

SEUNGRI SCANDAL HITS YG HARD

YG's success was led by Big Bang, so it came as no surprise that when the boy band collapsed, so would the label.

In early 2019, Big Bang’s former member Seungri was at the center of the country's infamous Burning Sun scandal, involving allegations of prostitution, bribery and sex crimes. Following the scandal, YG’s share price plummeted and the company went into survival mode.

The company had expected its new businesses to hold down the fort, but there wasn't anything solid enough. 
Moonshot store in Busan (Courtesy of YG Plus)
Moonshot store in Busan (Courtesy of YG Plus)

The cosmetics brand Moonshot remained a loss-making business and was handed over to cosmetics manufacturer Cosmax Co. YG Foods was also transferred to CEO Noh through a management buyout (MBO) deal.

And if that wasn’t enough, in October 2019, L Capital requested to cash out its redeemable convertible preferred stocks (RCPS) valued at around 67 billion won upon maturity. 

Rumors began to spread that YG was on the brink of bankruptcy as the label rushed to secure cash by selling off its assets and liquidating its shares in the Chinese tech giant Tencent.

YG'S M&A FAILURES SERVE AS CAUTIONARY TALE

YG's M&A failures have served as valuable lessons for other K-pop companies including the BTS label HYBE, which made it clear that it would not follow in YG's footsteps.

HYBE stressed that its M&A activities would focus on enhancing its platform business rather than diversifying its business portfolio.

HYBE surprised the market when it spent around $1 billion to acquire a 100% stake in Ithaca Holdings, a US-based media company that houses artists including Justin Bieber and Ariana Grande.

Similar to YG, HYBE will need to find ways to fill BTS' shoes once the members leave for their mandatory military service. But instead of stepping into uncharted territories, HYBE has been expanding its footing in the sector in which it is well-versed.

BTS has become a global sensation, sweeping Billboard charts hit single after hit single. 
BTS has become a global sensation, sweeping Billboard charts hit single after hit single. 

Meanwhile, industry watchers say that the worst has passed for YG as the label is nearly finished with liquidating its loss-making companies while its K-pop girl group Blackpink continues to make headlines in the US.

YG has also joined forces with HYBE by becoming the first among Korea's Big 3 music labels to feature its artists on Weverse, a fan community platform managed by the BTS label.

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

Danbee Lee edited this article.

Comment 0

0/300