[Funding] IMM PE Successfully Secures Late-Stage 855 Billion KRW Acquisition Financing for 'Hanssem Management Stake Purchase'

Hanssem Sangam Building Exterior View

[Asia Economy Reporter Lim Jeong-su] IMM Private Equity (IMM PE), a private equity firm, has successfully raised 855 billion KRW in acquisition financing (secured loans) to acquire a controlling stake in Hanssem, the leading furniture company in South Korea. After facing difficulties in assembling the lending syndicate due to controversy over the high purchase price of the shares, IMM PE improved investment conditions by measures such as treasury stock cancellation, ultimately securing all the funds needed for the equity acquisition.

According to the investment banking (IB) industry on the 3rd, Haim (LLC), Haim No.1 (LLC), and Haim No.2 (LLC), entities established by IMM PE for the purpose of acquiring Hanssem shares, completed the recruitment of lenders for acquisition financing amounting to 855 billion KRW at the end of last year. The acquisition financing, secured by Hanssem shares, was divided into senior tranche of 620 billion KRW, mezzanine tranche of 210 billion KRW, and junior tranche of 25 billion KRW according to the priority of collateral rights. The loan maturity is five years. Korea Investment & Securities acted as the lead arranger for the acquisition financing and gathered the lending syndicate.

The raised funds will be used to acquire the controlling stake in Hanssem. IMM PE and Lotte Group agreed to acquire approximately 27.7% of common shares held by Hanssem’s largest shareholder Chairman Cho Chang-geol, his daughters, and the Hanssem Dview Research Foundation for about 1.45 trillion KRW. IMM PE and Lotte planned to invest a total of 700 billion KRW in equity (350 billion KRW each), and raise the remaining 800 billion KRW through acquisition financing.

However, controversy over the high purchase price of the shares caused difficulties in recruiting lenders for the acquisition financing. The acquisition price per share was 220,000 to 230,000 KRW, more than twice the stock price of 100,000 to 110,000 KRW at the time of contract signing. Based on market price, the value of the target shares was only in the mid-700 billion KRW range. The acquisition financing amount exceeded the market value of the acquired shares. Considering that the loan-to-value ratio (LTV) for acquisition financing is typically around 50%, the LTV in this case was inevitably regarded as quite high.

Subsequently, the stock price continued to decline, worsening the funding conditions. At the end of last year, the stock price fell below 100,000 KRW, and as of now, it is trading at 91,700 KRW. The total value of the collateral shares has dropped to about 600 billion KRW. With the stock price plummeting, the acquisition financing of 855 billion KRW now exceeds 140% of the collateral share value.

Facing difficulties in recruiting lenders due to the high purchase price controversy, IMM PE resorted to using treasury stock. Hanssem holds 26.7% of its own shares as treasury stock. Based on the current stock price, the value of the treasury stock is estimated between 500 billion and 600 billion KRW. An IB industry insider stated, "It is understood that IMM PE succeeded in raising funds by improving investment conditions for acquisition financing, including the use of treasury stock."

IMM PE will complete the acquisition of 6,521,509 shares of Hanssem common stock with the raised funds. It announced that it will close the transaction for 5,521,509 shares on the 4th and pay an additional amount for 1 million shares on the same day to finalize the deal.

Meanwhile, Hanssem held an extraordinary general meeting of shareholders at its Sangam headquarters in Seoul on the 13th of last month, where it resolved to appoint four individuals, including IMM PE CEO Song In-jun, as non-executive directors and newly appoint three members to the audit committee.