LG Hausys, an industrial materials unit of South Korean conglomerate LG Group, is finishing up its due diligence process to sell its automotive business. The seller is expected to send teaser letters and seek potential buyers once the due diligence process is over.
According to M&A industry sources on April 23, LG Hausys is in the final stage of due diligence to sell its automotive business, which has been underway since last month. Samil PwC is currently carrying out the due diligence, which is expected to finish in May at the earliest. LG Hausys and its sale manager are likely to mull over their ultimate strategy while preparing teaser letters.
Yet, LG Group is unlikely to accelerate the sale process due to heightened uncertainties over global economic conditions after the outbreak of the coronavirus. The group is expected to continue tapping and mull over its appropriate sale strategy.
Market observers expect the automotive business’ valuation to be in a range between 600 billion won to one trillion won. The valuation is likely to be calculated based on the results of the detailed due diligence. The company currently reports combined sales of its automotive business and industrial film business in its financial statements.
As of the end of 2019, LG Hausys’ building and interior business accounted for 68.5 percent and automotive and industrial film businesses accounted for 29.5 percent of the company’s sales, respectively. The company recorded sales of almost 3.29 trillion won in 2019, of which automotive and industrial film businesses took up 918.1 billion won. The businesses recorded an operating loss of 21.8 billion won during the same period due to the sluggish automotive market.
The business’ operating loss may emerge as an obstacle when estimating the valuation, but some said attention needs to be paid to the possibility of turnaround. They said auto parts companies have strong growth potential as mobility and auto parts industries emerge as domestic conglomerates’ new growth engine.
Indeed, LG Group has focused on developing eco-friendly automotive technologies and increasing overseas sales. In line with this, LG Hausys has been putting efforts into expanding its lightweighting technologies and solutions, and developed light-weight materials long fiber thermoplastics (LFT) and continuous fiber thermoplastics (CFT).
In 2017, LG Hausys acquired a 50.1 percent share of c2i (Composite Innovation International), an automobile parts company based in Slovakia, for approximately 48.6 billion won. 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 results including upping sales or reducing costs. (By reporter Kim Hye-ran)