A 36% stake being offered in Doosan Infracore could be worth as much as 1 trillion won ($886 million), or a valuation multiple of close to 9 times, which would make it far more expensive than rival Hyundai Construction Equipment. 

Competition among the six bidders could drive up the sale price, but some observers still believe the valuation is excessive. 

Deal manager Credit Suisse has estimated Doosan Infracore’s normalized earnings before interest, tax, depreciation and amortization (EBITDA) this year to be about 500 billion won, according to industry sources. Based on the total equity value of about 2.7 trillion won – calculated with the assumption that the stake is worth 1 trillion won – and the net borrowing of 1.7 trillion won, the enterprise value (EV) is calculated at about 4.4 trillion won, or 8.9 times the company’s EBITDA.

In comparison, an EV/EBITDA multiple for Hyundai Construction Equipment is calculated at about 5.8 times, with approximately 1 trillion won of its enterprise value and expected 2020 EBITDA of 170 billion won.

Investors may give Doosan Infracore a higher multiple than Hyundai Construction Equipment because of its strong market position and size. However, an EV/EBTIDA multiple higher than 8 times is unlikely, especially with gloomy prospects for construction and real estate industries, industry watchers said.

With an EV/EBITDA multiple of 8 times, the stake in Doosan Infracore would be valued at about 820 billion won.

“The bidding race has heated up with strong interest from potential buyers,” said industry insider. “That said, they would think 1 trillion won for the stake is expensive.”

A consortium of Hyundai Heavy Industries and Korea Development Bank Investment, a consortium of GS Engineering & Construction and Domius Investment, Eugene Corp, Glenwood Private Equity, MBK Partners and EastBridge Partners have been shortlisted. The final round of bidding is expected to be held later this month. (Reporting by Seon-young Kim)