Kolon Life Science Inc is nearing a deal to sell its water solution division. The move seen as part of the South Korean firm’s efforts to raise funds due to legal action that could cost it tens of millions of dollars after the government agency revoked its permit for the company’s osteoarthritis gene therapy drug Invossa last year, sources said on July 24.
Kolon Life Science approached several private equity firms in May and now is in talks with one of them to sell the division. The company didn’t even hire an advisory firm to help with the sale because it wants a quiet deal, according to sources.
“Negotiations between Kolon Life Science and the preferred buyer are in the final stages now and a deal could be agreed soon,” a source said.
Kolon Life Science’s water solution division produces water treatment chemicals. It has two plants in Gimcheon, North Gyeongsang Province, with an annual production capacity of 13,000 tons.
The division has a stable business model with 40% of total revenue generated from public entities such as local governments and another 40% from private sector customers. The remaining 20% of its revenue comes from exports. According to the latest data, it had the second largest share in the country’s water treatment chemicals market after SNF Korea Co Ltd.
However, the division’s earnings have shown a downward trend in recent years, with revenue and operating income declining to 29.2 billion won ($24.4 million) and 2.1 billion won in 2019 respectively, down from 31.8 billion won and 4.2 billion won in 2015. Based on its latest financial results, analysts expect the division to be valued at about 20 billion won, which is equivalent to about 10 times its earnings before interest, tax, depreciation and amortization (EBITDA).
“Negotiations could take longer because earnings volatility could complicate the valuation process,” another source said. “But everyone knows it’s a fire sale, so the buyer would have an edge in negotiations.” (Reporting by Ik-hwan Choi)