Financial investors have still not confirmed their participation in the pre-initial public offering (IPO) of CJ Olive Young, amid questions over the beauty chain’s growth potential and the need for a possible exit route from the investment. 

Joint deal managers Credit Suisse and Shinhan Investment have started to notify shortlisted bidders and private equity firms that submitted non-binding offers during the preliminary round of bidding on October 15 are expected to take the next step, including detailed due diligence, industry sources on Thursday (October 29). 

It remains to be seen whether the managers will invite more potential investors to retain its control over the deal, they said.

About 10 potential buyers reportedly participated in the preliminary round, and five have made it to the shortlist. But many market insiders expect more candidates to compete in the next processes, including due diligence in a virtual data room.

CJ Olive Young originally planned to adopt a limited competitive bidding approach for the pre-IPO, but later broadened the pool of potential buyers as it thought there was a tepid response during the marketing process. Some market insiders said it might seem there was strong bidding interest, but the seller had actually lost control over the deal.

They said the deal managers are double-checking whether potential buyers intend to finish the race and have hinted that more bidders might be shortlisted. One concern by potential bidders is CJ Olive Young’s growth outlook, though the company has said its proportion of online sales has started to rise. 

Investors are also looking for a possible exit route, pointing out that CJ Olive Young might not pursue an IPO after the sale of old shares.

Owner CJ Group, the South Korean food and entertainment conglomerate, is selling a minority stake in CJ Olive Young, including a 17.97% shareholding held by Lee Sun-ho, the only son and heir apparent of group chairman Lee Jae-hyun, and a 10% stake owned by the chairman’s younger brother Lee Jae-hwan.

If new shares are issued, CJ Group may review its option to include a provision in the shareholders agreement to retrieve investments in the beauty chain. (Reporting by Ar-rum Rho)