SK Eng beats Goldman, Keppel in $846 mn bid for Korean waste treatment firm

SK Engineering & Construction Co. Ltd. has beat Goldman Sachs Merchant Banking Division, Singapore’s Keppel Infrastructure Holdings and two other final bidders to purchase South Korea’s largest waste treatment company EMC Holdings Co. Ltd., valued at over 1 trillion won ($846 million).

On August 19, Affirma Capital, an emerging markets-focused private equity firm, picked the South Korean builder as the preferred buyer of its 100% stake in EMC, according to investment banking sources. They will sign a share purchase agreement early next week.

SK Engineering was ahead of the four other shortlisted competitors in both price and non-price factors, including the strategy of improving its corporate value. The other bidders, two of whom have not been identified, had also proposed around 1 trillion won to buy EMC, the sources said.

EMC runs around 2,000 sewage and wastewater treatment facilities across the country, as well as four waste disposal facilities and a garbage incineration plant. The company is a combination of seven Korean entities of which Affirma Capital had made bolt-on acquisitions since 2016.

The acquisition will help SK Group's foray into the growing waste management market, where it hopes expand its business not only at home but abroad. With high-entry barriers, the waste treatment business generates a steady stream of cash and has low sensitivity to economic cycles.

SK Group expects to create synergy by using EMC to treat waste produced by SK Group's oil refining and chemical units, including SK Innovation Co. Ltd., SK Chemicals Co. Ltd. and SK Incheon Petrochem Co. Ltd.

"We made every effort to acquire EMC in an effort to push into the environmentally-friendly business, which creates both economic and social value," an SK Engineering source told the Korean Investors.

"We will seek to expand into other countries, utilizing our overseas plants."

Affirma Capital, formerly known as Standard Chartered PE, will likely see a return of around three times its investment in EMC, four years after it secured the management rights in 2016.

Net profits at EMC Holdings increased almost five-fold to 22.2 billion won in 2019 from a year before, with revenues up 10% to 380.9 billion won. Its EBITDA came to 82.2 billion won last year.

EMC is the largest waste management company among the three foreign-owned waste treatment companies in South Korea up for sale this year. Two of them, owned by Anchor Equity Partners and Macquarie respectively, were sold to KKR & Co. and a South Korean consortium for around 850 billion won and 500 billion won, respectively, or more than 10 times EBITDA.

Write to Chaeyeon Kim at why@hankyung.com