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The Korean Market
The Korean economy continues to experience strong and sustained growth. This growth is a result of increased export sales, a general improvement in the global economy and due to significant increases in global capital equipment purchases. The Korean economy is projected to benefit significantly from these trends and its long-term economic outlook appears very favorable.
As a result of increased Korean economic activity, many attractive investment opportunities have been created. These opportunities include growth equity investments, recapitalizations and management buyouts of not only new IT related companies, but also "old economy" traditional manufacturing businesses.
The Korean Middle Market
The Korean middle market has historically had little access to private equity capital. As a result, there is a large opportunity to make attractive investment opportunities. In addition, since there is currently little competition, the Joint Venture has the ability to choose the best middle market companies for investment, resulting in significant potential upside.
Key aspects of the Joint Venture's focus on the Korean middle market include:
Large Number of Appealing Acquisition Candidates. In 2004, according to the Korean Small and Medium Business Administration, there were over 80,000 medium enterprise companies with 100 to 300 employees and over 2.7 million small enterprise companies with less than 100 employees. Within the medium enterprise segment, a sizable number of companies owned by families or older individuals, many of whom are currently considering estate planning and liquidity options. Since this segment has had virtually no access to private equity capital, this sector represents a sizable pool of attractive investment opportunities.
Attractive Acquisition Candidates. For most of its modern history, Korea has been regarded as a traditional manufacturing economy. In the past 10 years, however, Korea has dramatically transformed into a leading service economy. With this transformation, many "old economy" companies are now moving or establishing operations in China and Southeast Asia. This trend has resulted in significant increase in the number of mid-sized companies that are looking to sell their businesses at reasonable valuations or get additional capital to establish offshore operations.
Increasing M&A Activity. Traditionally in Korea there has not been significant M&A or private equity due to strict government regulation, lack of willing sellers and insufficient access to capital to affect transactions. Starting in the mid 1990's, the Korean government began to loosen its securities regulations to allow increased M&A activity and the entry of foreign companies into the Korean market. This change resulted in several successful bank holding company turnarounds and a handful of high-profile large buyout transactions. In the middle market, however, M&A and private equity transaction remains rare despite the significant demand for such activity. The Joint Venture is capitalizing on this demand and form the first buyout Joint Venture to target middle market transactions.
Growth of Small and Medium Companies versus Large Companies. Similar to other countries, mid-sized companies are growing faster in Korea than larger companies. In fact, the growth rate of sales of small and medium business is three times greater than larger companies. Despite the stronger overall growth trends, middle market companies do not have the same access to capital that large companies do. As a result, the number of middle market companies seeking private equity capital is significant.