Several private equity firms are conducting due diligence on LG Hausys’ automotive business, industry sources said on August 21.
Large PE firms with deep pockets and strategic investors are mentioned as strong candidates for LG Hausys as LG Group is seeking a valuation of hundreds of billions of won for the business unit. Strategic investors are expected to either form a consortium with financial investors or join the race after the deal makes further progress.
LG Group has decided to offload its industrial materials unit LG Hausys’ non-core asset automotive business to strengthen the company’s competitiveness. It hired a sale manager to handle the process earlier this year. Since then the group has performed sell-side due diligence and has contacted financial and strategic investors who have expressed interest in acquiring the business through a private deal.
Potential buyers have reportedly conducted due diligence on the business over the past couple of months. The likelihood of success of the planned sale is expected to depend on whether potential buyers will remain in the race.
Industry insiders are raising questions about whether the deal will be struck as the automotive business has recorded a loss amid a subdued automotive sector. LG Hausys’ automotive and industrial film businesses recorded an operating loss of 20 billion won ($16.8 million) in the second quarter of this year.
LG Hausys has been putting efforts into expanding its lightweighting technologies and solutions. LG Hausys acquired c2i (Composite Innovations International), an automobile parts company based in Slovakia in 2017. C2i boasts world-leading technology in the field of carbon fiber. Market observers expect LG Hausys’ automotive business may post a turnaround if the company’s existing assets produce tangible outcomes such as increasing sales or reducing costs.
LG Hausys is expected to mull over a diverse range of deal structures rather than rushing to sell the business. Industry watchers said including its industrial film business in the sale plan in a bid to raise the valuation of the target or selling off the target at a lower price will be a key to strike a deal. LG Group currently seeks to offload the automotive business only.
The company currently reports sales and operating profit of its automotive business and industrial film business together in its financial statements.
“I heard that the company’s industrial film business generates an operating profit on the back of its strong presence in the global market,” said an industry source. If the industrial film business is included in the deal, many potential buyers are likely to show interest, he added. (Reporting by Hye-ran Kim)