Private Equity Firms Race to the Finish Line with Homeplus


August 24, 2015


Monday marks the deadline for bids for the Tesco South Korean unit, Homeplus. The unit is valued at around $6 billion and a number of big private equity firms are reportedly finalising their bids to snatch the supermarket.


Forming Alliances


Reports on Sunday’s Korean newspapers suggest global private equity firms are creating alliances in order to win the bid to buy Homeplus. It is thought the Asia-based Affinity Equity Partners has forged an alliance with the US-based KKR. US-based Carlyle Group has teamed up with the Singapore-based fund GIC, while Asia-based MBK is partnering up with South Korea’s National Pension Service.


Tesco put the unit for sale this June, with plenty of immediate interest. According to reports, the winning investor group will be announced in September and the deal could be completed by the end of the year.


Furthermore, there is plenty of interest outside of private equity firms. The South Korean confectionary manufacturer, Orion, is reportedly interest, although the company had not been shortlisted. Hyundai Department Store is also looking into buying Homeplus.


Strength in the South Korean Market


The interest from private equity firms indicates faith in the South Korean retailer market and the growth prospects of Homeplus. If the reported valuation proves to be true, the deal could be among the biggest buyouts in the Asian consumer sector.


On the other hand, the fact that private equity firms are teaming up with other partners for the deal shows the market remains a bit of a double-edged sword. The sales this year have been badly hit by fears of a Middle East Respiratory Syndrome (MERS) outbreak. Furthermore, the South Korean retailer market has to deal with an increased focus on online trade. People are simply choosing to shop online in growing numbers because of its convenience, something traditional brick-and-mortar stores like Homeplus have to incorporate into their strategies going forward.


Tesco’s Bid for a Turnaround


The UK-based supermarket giant has suffered greatly during the past year. It has had to deal with increasing competition as well problems in its accounting. Last year, the retailer made a loss of $9.5 billion and the Homeplus sale is hoped to help regain Tesco’s fortunes.
Homeplus operates around 400 stores in South Korea, with nearly 500 franchised businesses. It serves an estimated six million customers every year and it is Tesco’s largest business operation outside of its retail business in the UK. According to some experts, the Homeplus sale could provide Tesco with $6 billion and help it to rebuild its balance sheet.


Tesco is also in the process of selling its stake in Dunnhumby, the data business. The retailer has struggled to sell the data business, with valuation going down after strong initial interest by the likes of Google. It has also sold a number of smaller assets like the digital entertainment business Blinkbox and a fleet of private jets.


Next week could help turn the tide for the struggling UK retailer. It remains to be seen which private equity pulls off the winning bid for the unit, if any. In the meantime, you can find private equity deals for your own portfolio at DealMarket.

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