CVC Capital Partners is set to buy a controlling stake in South Korea’s No. 2 accommodation booking app operator and in separate talks with minority shareholders to raise its ownership in the start-up firm to about 80%, in a deal worth more than 340 billion won ($285 million).
The British private equity firm has reached a preliminary agreement to acquire 52% of With Innovation Corp., which runs the hotel reservation platform, Good Choice, from its ex-CEO Myeong-seob Sim and affiliated companies, according to investment banking sources on August 1.
It is aiming to close the deal in August, which will be its first Korean acquisition in five years.
The transaction will also mark the first takeover of a South Korean accommodation booking platform by a global investment company.
It follows sovereign wealth fund GIC’s investment in South Korea’s biggest hotel booking app Yanolja in June, participating in a $180 million funding round.
CVC valued the whole company at more than 300 billion won. Based on the valuation, the 52% stake in With Innovation is worth 156 billion won.
The reservation app, launched in 2015, is called Yeogi Eotta in Korean, meaning “How about this place?”
To boost its holding to around 80%, CVC is in negotiations with Seoul-based private equity house JKL Partners which owns a 18% stake, as well as other financial investors composed of Korean venture capital firms.
The VC firms include Korea Investment Partners, Mirae Asset Capital and Mirae Asset Venture Investment.
In addition to the estimated acquisition price of 240 billion won for an 80% stake, CVC plans to spend 100 billion won buying new shares of the Korean start-up company.
If JKL Partners sells its entire stake, it will secure 54 billion won in proceeds, more than double its investment of 24 billion won in three years.
For the equity investment, JKL raised capital from the National Pension Service, the Public Officials Benefit Association and other Korean institutions through a blind-pool fund in 2016.
LOSS-MAKING, BUT LOW PENETRATION
Driven by shorter working hours and more spending on travel and leisure activities, South Korea’s leading accommodation booking platforms have posted double-digit revenue growth year-on-year.
For With Innovation, its revenues almost trebled to 68.6 billion won in 2018 compared with three years earlier. Monthly active users grew to 2.8 million, with 50,000-odd accommodations registered on its platform.
But the company swung to a loss of 11.6 billion won in 2018. Heavy marketing costs ate into earnings because of stiff competition with bigger rival Yanolja, which means “Hey, let’s play” in Korean.
In June, Yanolja drew $180 million in an investment from Singapore’s GIC and Booking Holdings, after its losses widened by almost 50% to 19.3 billion won in 2018 from a year before.
Along with the fundraising, it signed a strategic partnership with Booking Holdings so that its customers are able to book accommodations through the world’s biggest online travel platform’ brands, including Singapore-based Agoda and booking.com.
Despite their loss-making operations, South Korea’s online travel reservation market is expected to grow further, given that the penetration of online booking is only 30% of total accommodation reservations.
Their push into various outdoor activities is also boosting growth prospects.
In 2017, CVC bought Swedish online travel agency, Etraveli, betting that travelers are moving away from traditional travel agents to online tools.
At the time, CVC planned to expand the online booking platform into Asia.
The last acquisition CVC sealed in South Korea was fast-food franchise KFC in 2014. It sold the restaurant brand in 2017 to a Korean company reportedly for 50 billion won, half its purchase price.
By Hugh YH Jeong and Chaeyeon Kim
<Edited by Yeonhee Kim>
(Photo: Getty Images Bank)