MBK Partners in talks to buy Kakao Mobility

MBK Partners, one of the largest private equity firms in Asia, is in talks with the country’s top mobile platform Kakao Corp. to acquire shares in Kakao Mobility Corp., investment banking sources said on Tuesday.

Kakao holds a 57.5% stake in Kakao Mobility, the country’s largest mobility platform. A consortium led by US private equity giant TPG Inc. owns a 29% stake and The Carlyle Group holds a 6.2% stake as financial investors. MBK may also have to buy some shares from the TPG-led consortium and Carlyle if it closes the deal with Kakao and the two US investment firms want to sell their shares.

Although the PE firm is negotiating the deal with Kakao Mobility's largest shareholder, nothing has yet been determined on selling the shares, Kakao told The Korea Economic Daily.

Valued at around 8.5 trillion won ($6.6 billion) in April, Kakao Mobility has prepared for an IPO with Korea Investment & Securities Co., Credit Suisse Group AG and Citigroup Inc. as lead managers and Daishin Securities Co. as a co-manager. However, the mobility platform had to delay the public offering due to rate hikes and government regulations on chauffeur services, its main business area.  

As its IPO plan became uncertain, MBK Partners began working to acquire Kakao Mobility to boost its corporate value.

CHALLENGES IN FURTHER BUSINESS EXPANSION

Kakao founded the mobility platform in 2015 by taking over a local navigation app. Kakao Mobility now boasts 30 million cumulative users and 10 million monthly active users, providing taxi-hailing, car parking, autonomous driving and chauffeur services. It is also set to launch a door-to-door auto transport service from this month.  

Spun off from Kakao in 2017, Kakao Mobility grew fast as the parent company's key subsidiary. The mobility platform achieved 546.4 billion won in sales and 12.5 billion won in operating profit last year and is expecting 1 trillion won in sales this year.

The mobility platform differentiates itself from the parent company's other subsidiaries Kakao Pay Corp. and KakaoBank Corp. in terms of traffic to apps. While the two main fintech services providers receive a majority of their users through the messenger app Kakao Talk, Kakao Mobility has secured users via its own app Kakao T.

However, it has faced national criticism against local market dominance, especially in the designated driving service business. From June 1, the firm and other Korean conglomerates launched their designated driving business expansion, but under government restrictions for three years.

PARENT KAKAO, TPG, CARLYLE HOLD KEY IN NEGOTIATIONS

MBK decided that acquiring Kakao Mobility from the parent company addresses the monopoly concerns, an IB source said. The PE firm also saw huge potential growth in Kakao Mobility’s corporate value through mergers and acquisitions and business expansion, the source added.

MBK Partners, managing 32 trillion won in assets, is regarded as the only candidate to buy the 8.5 trillion won-worth mobility platform. The PE firm has also emphasized investment in tech – “We practiced our mantra, that every business is a tech business,” said MBK Partners’ founder and chairman Michael ByungJu Kim in his annual letter to investors on March 15.   

If the deal is clinched, parent company Kakao will keep some shares to benefit from the rise in Kakao Mobility’s corporate value in the future, some IB sources said.

The focus of the deal is the price. Kakao Mobility posted 36 billion won in earnings before interest, taxes, depreciation and amortization (EBITDA) last year, which means the potential buyer should suggest a purchase price higher than expected earnings via IPO.

Also, the TPG-led consortium and Carlyle own tag-along rights – which means they have the option to sell their minority stakes if majority shareholder Kakao sells its stakes in the mobility platform. If the two US investment firms execute their rights, MBK Partners may be pressured by a total of 5 trillion to 10 trillion won in deal volume. Therefore, negotiations between shareholders and MBK Partners on Kakao Mobility’s share price will be the key factor in closing the deal; otherwise, parent company Kakao won’t sell the core subsidiary, sources said.

(Updated with Kakao Mobility's EBITDA and shareholding rates)

Write to Chang-Jae Yoo and Jun-Ho Cha at yoocool@hankyung.com
Jihyun Kim edited this article.