South Korean private equity (PE) firms are struggling to find investors for funds in the materials, parts and equipment sectors.
One PE firm was in the midst of acquiring a foreign materials, parts and equipment company and had reportedly finished conducting due diligence at the beginning of this year, but the deal has practically halted, according to industry sources on June 18
Korea Growth Investment Corp. (K-Growth), an independent fund-of-funds (FoFs) investment firm, began selecting external managers to create project funds for the materials, parts and equipment sectors in January. The company plans to commit up to 100 billion won ($82.7 million) in project funds over the next two years, with a maximum of 30 billion won for each fund. K-Growth has invested in three PE firms so far, with each receiving less than 10 billion won.
According to the qualifications set by K-Growth, 60% of a fund has to be allocated to companies in the materials, parts and equipment sectors.
Multiple PE firms have reportedly tapped K-Growth in a bid to invest in foreign companies in the materials, parts and equipment sectors. However, there has been zero commitment to a fund devoted to foreign companies as the investment program is aimed at Korean firms.
The Export-Import Bank of Korea participated in the acquisition of US silicon company Momentive Performance Materials by SJL Partners, a private equity fund (PEF) operator, along with KCC and Wonik QnC, last year. Korea Eximbank also invested in a Korea Midland Power project to construct a wind power plant in Sweden.
Against this backdrop, PE firms are joining hands with investors to raise funds for domestic material, parts and equipment companies.
An investment banking industry source said: “It is difficult to conduct due diligence on foreign companies due to the Covid-19 pandemic and the gap in expectations between a seller and potential buyers is too wide to attract strategic investors.” (Reporting by Byung-yoon Kim)