GP Club, which operates the beauty brand JM Solution, is considering a dual-track process for the company, which could result in a sale or a listing, as declining sales have cast a cloud over the company’s earnings outlook.
Founder and chief executive Kim Jung-woong hired an unnamed advisory firm at the end of last year to run the sale of a majority stake, industry sources said. Kim owns 48.8% of the company, and close allies collectively have a 43.6% stake.
Discussions have been held with private equity buyers, but no deal has been signed, largely because they failed to reach an agreement on the price, according to sources.
The company raised 75 billion won ($67.2 million) from Goldman Sachs in October 2018 at a valuation of $1.32 billion in a deal that made the cosmetics company the ninth unicorn – a startup valued at more than $1 billion – in South Korea. In 2019 it started preparations for an initial public offering (IPO) on the Seoul stock exchange.
The company’s rapid growth was largely due to a surge in revenue in the Chinese market. However, its earnings declined from 554.3 billion won in 2018 to 468.7 billion won in 2019, and operating income fell from 206.6 billion won to 122.6 billion won. Its 2020 results are expected to have been badly impacted by the Covid-19 pandemic.
The downward earnings trend could make it difficult for the company to receive approval from the stock exchange for its IPO. This could be the reason that Kim started the sale process while still preparing for the listing.
An official at GP Club denied that the company was up for sale, saying that the discussions were “about raising additional money before an IPO” and that they were “not considering selling a controlling stake”.
But Kim will not give up the option of selling the company even if the IPO goes ahead, according to a source with knowledge of the company’s plans, as it could be a better way for him to exit the business than a listing. This is because the company could get a higher valuation with a controlling premium included in the price, observers said.
There is reportedly a big gap between Kim’s asking price and potential buyers’ bids.
“As the country’s cosmetic industry slows down, more firms are considering a sale,” an industry insider said. “But this is unlikely to lead to an increase in buyout deals in the sector because most of the sellers hope to fetch a price that cannot be justified with recent earnings data.”
L&P Cosmetic, a South Korean beauty firm that sells the skincare brand Mediheal, raised 40 billion won from Credit Suisse in October 2018 in a deal that valued it at 1.2 trillion won. But in 2019 it recorded an operating loss of 13.5 billion won on revenue of 234.8 billion won, down more than 26% year-on-year. (Reporting by Si-eun Park)