Private Equity Firm MBK Set to Buy Tesco Unit for $6bn


September 3, 2015


Tesco’s South Korean unit, Homeplus, has been on sale for months, but the winning bidder seems to be emerging from the crowds. Private equity firms have been interested in the business and it looks MBK Partners has come out on top.


Reports of a Deal


The Seoul-headquartered MBK Partners is reportedly the winner of the bidding war. According to Bloomberg, the private equity firm has entered talks with the British company and the firm could buy the Homeplus unit for $6 billion, including debt.


Sources close to the matter have said the firm, which is bidding with a consortium involving the likes of South Korea’s National Pension Service, entered final talks on Wednesday. This would mean the private equity-led consortium managed to beat competition from other consortiums, such as one led by the private equity firm KKR.


Securing Investment for the Big Deal


If the reported sums were true, the deal would be among the largest private equity deals in Asia. It certainly would be the largest ever in South Korea, topping the previous deal of $3.6 billion last December, when Hahn & Co bought control of Halla Visteon Climate Control Corp. Reuters reported on Wednesday how one insider said the deal’s total was “higher than expected”.


Furthermore, reports suggest the consortium has managed to secure around $3.4 billon worth of financing from South Korean financial institutions. These include Hana Daetoo Securities, NH Investment & Securities, Shinhan Bank and Woori bank. Goldman Sachs’ private equity arm was also part of the MBK-led consortium, but it dropped out of the bidding process earlier.


Spokespersons for the Tesco and MBK Partners had not made a comment on the deal at the time of writing.


Asia-Focused Funds Looking for Investments


The high private equity interest towards the unit doesn’t come as a surprise, even though the company has seen its profits drop. Homeplus has managed to maintain a strong cash generation and the unit is sitting on valuable property assets.


In addition, many private equity funds have raised big funds for Asia investments, but have so far lacked proper investment opportunities. Among other big funds, Baring Private Equity Asia closed its $4 billion fund earlier this year. Hamilton Lane’s data suggested raised capital for the region’s funds stood at $29 billion in 2014. For many firms, unused funds are becoming a big issue and firms are constantly on the lookout for more deals.


In the past, firms have also favoured South Korea. According to the Wall Street Journal, this has been down to “the size of deals” together with “the availability of cheap financing from local banks”. But the article also pointed out to the problems firms have faced in turning these deals into profitable exits. Private equity deals have also been in trouble with the authorities. US firm, Lone Star Funds, has been in dispute with the South Korean government for months, with arbitration taking place this year.


If the deal is to go through as reported it’ll be interesting to see if it can start further investment-spree in the region. With valuations so high and turmoil in China continuing, it’s interesting times for Asia-focused funds.

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