MBK Partners eyes China’s local consumption: Letter to investors

Private equity giant MBK Partners focused on defending its portfolio last year, especially Chinese companies during the lockdown, while being active in buyouts and special situation investments in South Korea and Japan, co-founder and Partner Michael ByungJu Kim said in his annual letter to shareholders last week.  

The North Asia-focused PE firm manages more than $26 billion with commitments from around 100 institutional clients worldwide, including Korea’s National Pension Service (NPS) and the Canada Pension Plan Investment Board (CPPIB).

Founded in 2005, it has made 68 investments and 38 realizations as well as distributed $18.3 billion to its investors, one of the highest totals in the North Asian region.    

The firm forecasts that local consumption in China will grow in the mid to long term, making the country one of the most important markets in the world, Kim noted.    

“China’s private consumption of 43 trillion yuan in 2022 represents 38% its gross domestic product, nearly double its exports. Our investment strategy has focused on domestic consumption plays. From CAR Inc. to eHi and Siyanli to Haihean, our China portfolio has been constructed to benefit from the greatest middle-class rise in modern history,” he said.  

DEMOGRAPHIC-FOCUSED STRATEGY

The PE firm said demographics is one of the important data sets representing thematic trends shaping Japan and Korea today, and it led their investments in healthcare and elderly care, such as Japan’s two nursing care service firms – Tsukui Holdings Corp. and Unimat Retirement Community Co. – as well as Korean dental implant maker Osstem Implant Co., in which it acquired a controlling stake along with Unison Capital Korea in February. 

In addition to Osstem, MBK made other large deals in Korea last year. It completed the acquisition of Medit, a major intraoral scanner provider globally, for $883 million. It also bought Dongjin Textile Co., a footwear textile supplier to Nike and Adidas, for $344 million, and comparison shopping platform Korea Center, which was renamed Connect Wave through the merger with market peer Danawa Co. last October, for $400 million.  

The PE firm focuses on so-called structured investments, vertical combinations for operating synergy. Such cases include the acquisitions of Connect Wave with Danawa and the buyouts of dental scanner maker Medit Corp. and Osstem. MBK will also stress add-on investments, including Tsukui with Unimat.

PATIENCE NEEDED FOR LONG-TERM FRUITS

MBK’s funds strongly performed amid the pandemic between 2020 and 2022, he said. The PE firm raised $9.7 billion in capital, deployed $7.1 billion in investments and distributed $7.4 billion, the largest amount returned during the period in Asia. After the distributions, it has $11.2 billion remaining in fair market value in the portfolio.

The recently liquidated Buyout Fund II nearly tripled in value from its inception. Buyout Funds III and IV increased to 2.1 times and 1.6 times in value, respectively, and Special Situations I has doubled since its inception – the funds have outperformed the North Asian public markets during their fund life, he stated.

Despite recent bumps in the road, especially in China, the PE firm believes the Asian private market will continue to grow over the mid to long term. Patience will eventually be rewarded and the firm will be the beneficiary, the co-founder said.

Write to Jihyun Kim at snowy@hankyung.com

Jennifer Breen-Nicholson edited this article.