MBK Partners’ sale of Homeplus Express hits snag over valuation gap

MBK Partners’ planned sale of Homeplus Express, the supermarket chain of South Korean hypermarket operator Homeplus, has hit a snag as potential buyers' interest is increasingly waning over valuation differences.

The South Korean private equity firm put Homeplus Express up for sale in June, attracting several retail companies.

Among those interested were Chinese e-commerce giant Alibaba Group Holding Ltd., GS Retail Co. and BGF Retail Co.

Industry sources, however, said on Friday that all of them have put their bids to acquire Homeplus Express on hold over differences in its valuation.

“It’s been almost three months since Homeplus Express was up for sale but due diligence on the company has made little progress,” said one of the potential buyers.

In June, MBK Partners picked Morgan Stanley as the sale manager of Homeplus Express as part of efforts to improve Homeplus’ financial health ahead of its eventual exit.

The seller reportedly sent a teaser about the Homeplus Express sale to about 10 potential buyers such as retailers, e-commerce operators and online platforms at home and abroad.

Established in 2004, Homeplus Express is one of the big four supermarket chain operators in Korea, along with GS Retail’s GS The Fresh, E-Mart Inc.'s E-Mart Everyday Inc. and Lotte Shopping Co.'s Lotte Super.

VALUATION GAP

Morgan Stanley is said to have estimated unlisted Homeplus Express’ 2023 earnings before interest, taxes, depreciation and amortization (EBITDA) at 100 billion won ($72.5 million).

MBK and Morgan Stanley reportedly hope to receive 600 billion-800 billion won in proceeds from the sale, amounting to six to eight times Homeplus Express' 2023 EBITDA.

But potential buyers estimate Homeplus Express’ value at 300 billion-400 billion won, sources said.

“The seller presented the expected annual growth rate of Homeplus Express’ quick commerce service at 58%, but we are not convinced,” said one of the potential buyers.

Homeplus Express was a leader in quick commerce, which uses motorbikes to deliver goods ordered online, but has recently been losing ground to rivals such as E-Mart Everyday and GS The Fresh, which are readily available on food delivery app Baedal Minjok, or Baemin for short.

Homeplus Express operates a one-hour delivery service, which ensures the delivery of fresh food and other goods within an hour after orders, utilizing offline stores.

“Homeplus Express’ offline stores are also aging, meaning most of them require large-scale investments to renovate,” said another potential buyer.

Homeplus Express runs 235 stores, about 75% of its total 315 branches nationwide, in key commercial and residential areas in Seoul and surrounding regions.

LABOR ISSUES

Labor issues are also complicating MBK’s sale of Homeplus Express.

Last week, unionized workers of Homeplus, which belongs to Korea’s Mart Industry Labor Union, held a rally, with around 1,000 members participating, to protest the sale of Homeplus Express.

Potential buyers demand that Morgan Stanley provide a clear-cut plan to address union-related risks.

In 2015, MBK acquired 100% of Homeplus for 7.2 trillion won from British retailer Tesco Plc, in its biggest acquisition and the largest buyout transaction in Asia at the time.

Write to Jae-Kwang Ahn at ahnjk@hankyung.com

In-Soo Nam edited this article.