Korea continues its corporate restructuring efforts post the economic crisis of 1997 as yet another conglomerate falls into the hands of western private equity investors.
This time, Haitai Confectionary Co., a confectionery and packaged foods business, was acquired by a consortium of investors, which includes CVC Asia Pacific Limited, JPMorgan Partners Asia, Ltd., and UBS Capital Asia Pacific Ltd., for approximately $318 million. JP Morgan and Chohung Bank financed the deal with a $241 million seven-year loan. The equity investors each received a 33.3% stake in the company.
“Haitai is a 56-year-old franchise and is a well-recognized household name in Korea,” said David Lai, President of UBS Capital’s Singapore office. “We like the industry because it is defensive in nature and attractive cash flow. The company also has critical mass in terms of operations and its turnover is in excess of $424 million.”
Haitai’s food products include biscuits, chocolate, chewing gum, candy, ice cream and frozen foods. The company’s sales revenue for this year is $433.9 million.
Other strategic buyers such as Nestle SA, Nabisco Holding Corp. and Lotte Confectionary Co. were also reportedly interested in acquiring Haitai Confectionary before the financial sponsors began their due diligence on the company.
Lai said the investor consortium want to make Haitai the “leading food company in Korea in terms of product and marketing innovations” by “streamlining and improving its brand management, shift portfolio mix selectively to those that are clear winner, develop niche markets, and enhance the company’s distribution channels.”
The Haitai buyout is the first transaction to be completed under the “pre-packaged” plan under the newly enacted Korean Corporate Reorganization Act, which went into effect on Sept. 15. Under the new legislation, banks have the leeway to force companies with a heavy debt load to proactively take on restructuring measures. Haitai Confectionary’s board of directors in April applied for court protection from its creditors.
Deal flow notwithstanding, Korea remains a very challenging environment in which to close transactions. “We still see attractive propositions. But…it takes a lot of time, perseverance and relationship management, not to mention agility in deal structuring, to get the deal into a bankable form,” Lai said.
In short, Lai added, buyouts are flourishing in Asia but still have many challenges. However, it could be quite rewarding for those who can get it done there.