North Asia-focused private equity firm MBK Partners is looking to launch its second special situations fund in the second half of this year to capitalize on increased market uncertainties created by the Covid-19, in search of proprietary deals for cheaper valuations.
Its inaugural special situations fund (SSF), which raised $850 million in 2018, invested $424 million in five companies in 2019 through structured securities. The SSF reported the highest internal rate of return of 86.2% among MBK’s five active funds.
“We are now over 80% deployed in Special Situations I, paving the way for the launch of Fund II in second-half 2020,” MBK said in its 2019 annual letter.
Details about the new fundraising plan have not been revealed, while the firm is nearing a final close of its fifth buyout fund on around $6.5 billion.
With a surge in valuations on Asian assets and a record $105 billion in dry powder at Asia-focused funds, MBK will continue to focus on proprietary deals, utilizing its long-built relationships with would-be sellers including chaebol, or family-controlled business groups in South Korea.
“Our conviction remains that proprietary deals are cheaper,” said Michael ByungJu Kim, founder and partner of the Seoul-based firm, in the annual letter sent in mid-March.
The median purchase multiple for Asian transactions was 14 times EBITDA in 2019, the highest in more than a decade, according to MBK.
MBK expects the economic impact of the Covid-19 will be deeper and longer-lasting than the SARS in 2003 and pose a severe threat to its portfolio, of which consumption-related sectors make up over three-quarters.
“We also know deal opportunities proliferate in times of distress or upheaval. There will be compelling opportunities in buyouts and especially in special situations. We remain mindful of competition, but our growing conviction is that relationships trump all competition.”
For the special situations strategy, it will focus on controlling stakes in companies in distress or special circumstances.
In 2019, MBK deployed $2.3 billion of capital in 12 investments across buyout and special situations strategies. It marked the highest annual amount of deployment in its 15-year history.
The SSF’s investments include fried chicken franchise BHC in South Korea, Accordia Next Golf in Japan, cinema operator CGI Holdings, OCI in Hong Kong and Modern Land in China.
MBK’s four active buyout funds invested $1.6 billion in five companies in 2019, including South Korea’s Lotte Card for $1.1 billion and Godiva Japan for over $1 billion, as well as three companies in China.
Last year, it secured $3.5 billion in proceeds from exits and dividend incomes and through recapitalizations of companies it had invested in.
On an absolute returns basis, the aggregate marks for all its funds, including the SSF, were multiple of equity of 19x an IRRs of 18.0% at year-end 2019.
Since inception in 2005, the private equity house has increased capital under management to $22 billion. It has invested $13.6 billion in equity in 41 companies in China, Japan and South Korea, including exited companies, with focus on consumer and retail, telecommunications and media, and financial services industries.
Their cumulative proceeds came to $12.1 billion, including limited partner co-investment proceeds
MBK cited its “localness” as the key factor behind a series of its profitable deal making in North Asia.
“We still target North Asia exclusively. … We continue to believe our home markets in North Asia represent the most fertile ground for investments in all of Asia,” it said in the annual letter for 2019.
By Chaeyeon Kim
<Edited by Yeonhee Kim>