IS Dongseo has been pursuing aggressive mergers and acquisitions (M&A) over the past two years as it rebuilt its business structure, with the firm expected to continue focusing on its main environmental and construction businesses to drive growth.
The concrete-to-construction company has sold non-core businesses and purchased waste management firms to support the environment business, which it started about four years ago when it took part in firm E&F Private Equity’s purchase of construction waste management firm Insun Environmental New Technology (Insun ENT).
IS Dongseo made five more M&A deals and injected 400 billion won ($362 million) into the environmental business. It made bolt-on deals by investing 150 billion won in Insun ENT, 20 billion won in Kolon Environment & Energy, 150 billion won in Koentec, and 70 billion won in Young Hung Industry Environment and Paju BNR.
In contrast, IS Dongseo made the bold decision to offload its non-core businesses, selling Korea Rental to PS Alliance in 2019 and separating and selling Inus to E&F PE.
The reorganization efforts are starting to bear fruit. IS Dongseo generated an operating income of 35.3 billion won from its environmental business during the first three quarters of 2020, up 74% from the previous year. The environmental business accounted for 23% of the company’s total operating income.
Industry watchers expect its strong financial performance to continue, with Insun ENT acquiring Young Hung Industry Environment and Paju BNR in late 2020. Insun ENT, South Korea’s largest construction waste management company, is also expected to benefit from an increasing housing supply this year.
A series of M&A deals is expected to help IS Dongseo consolidate its value chain by creating synergies among core businesses. While Insun ENT doesn’t have incineration facilities, Young Hung Industry Environment’s business includes collection, transportation, and incineration of construction waste. It also produces and sells steam energy, which is generated during the process of incinerating waste.
Koentec operates incineration, steam and landfill businesses, which account for 40%, 40% and 20% of its revenue respectively. Koentec sells its steam to SK Chemicals in Ulsan Complex, and to Lotte Chemical and Hyundai Motor, and has a market share of over 60% in the Ulsan area.
A consortium of IS Dongseo and E&F PE acquired a 59% stake in Koentec and a 100% in Saehan Environment in June 2020 for 500 billion won in a package deal in which IS Dongseo purchased a 30% stake. (Reporting by Jin-young Ko)