Why Did the Wallenberg Family Acquire a Korean Security Company?

EQT Partners Secures 70% Stake in SK Shieldus
SK Shieldus Evolves into AI Security Company in Collaboration with SK Telecom

Sweden's Wallenberg Group affiliate and one of the world's top three private equity firms (PEF), EQT Partners (EQT), is acquiring SK Shieldus (formerly ADT Caps), the second-largest security company in South Korea. EQT Partners is Europe's largest PEF operator with assets under management totaling €113 billion (approximately KRW 156 trillion). Why is this mega private equity firm acquiring the country's second-largest security company?

Conceptual diagram of SK Shielders' 24-hour unmanned safety AI solution.

As the artificial intelligence (AI) industry, represented by ChatGPT, gains global attention, the value of companies possessing big data and AI technologies is rising. EQT's acquisition of SK Shieldus can be interpreted in this context as an acquisition of an AI-related company.

SK Shieldus is a physical security company that SK Telecom purchased from Carlyle in 2018 for KRW 2.97 trillion, together with the Macquarie consortium. It holds a market share in the 30% range, ranking second domestically after S-1 (with a 50% market share).

SK Shieldus Evolves into an Artificial Intelligence (AI) Company... Part of the Wallenberg Family's Investment Portfolio

SK Shieldus became a subsidiary of SK Square when SK Telecom underwent a spin-off in 2021, separating its business division (SK Telecom) and investment division (SK Square). In the same year, it merged with SK Infosec, SK Telecom's information security subsidiary. As a result, it now provides not only physical security but also information security services. As AI technology adoption expands, threats such as Internet of Things (IoT) hacking may increase, making SK Shieldus's portfolio attractive.

Thus, over the past five years, SK Shieldus has transformed from a simple physical security company preventing external intrusions, owned by SK Group, into an AI company utilizing vision AI technology held by SK Telecom.

Looking at SK Shieldus's video security solution 'ViewGuard AI,' launched last year, significant technological advancements have been made. ViewGuard AI can recognize not only when a person intrudes into a building via CCTV (closed-circuit television) but also distinguish whether the person is standing or lying down, male or female, and estimate their age group.

AI CCTV is used for security purposes at night and switches to business mode during the day to collect data. It gathers visitor data, analyzes the number of visitors, changes in visitor numbers compared to the previous day, and the time periods with the highest visitor counts. It also features search functions by person, vehicle, and color. Videos can be searched by the color of clothing worn by people as well as vehicles. Users can specify areas and set desired dates and times. This aligns with the increasing trend of unmanned stores, enabling remote management of store operations, video security, and self-monitoring.

They are also building IoT care services that can expand into senior care businesses. These services use IoT devices to quickly respond to emergencies involving elderly living alone and disabled individuals exposed to risks such as solitary death and fire. Various sensors detect fire and entry, monitor the subject's heart rate, breathing, sleep, and activity levels automatically, and enable rapid response through an automatic 119 emergency call function. An emergency call button is also supported, allowing the subject to connect immediately to 119 in critical situations. This technology is gaining attention amid social issues of depression and loneliness among elderly living alone, exacerbated by reduced social networks due to COVID-19.

EQT has actively invested in the IT services sector worldwide, including Europe and the United States, and has successfully exited investments. It acquired Securitas Direct, the home security subsidiary of Sweden's largest security company Securitas, in 2008 and successfully exited the investment in 2011. EQT also holds management rights of Israeli cybersecurity company CYE. Going forward, SK Square is expected to remain the second-largest shareholder of SK Shieldus and stay on the board to continue synergy effects with SK Group. This suggests a future where SK Shieldus becomes a global security company through cooperation between EQT and SK Group.

Why Did SK Sell? Difficulty in Recovering Investment After IPO Withdrawal

SK Square, which positions itself as an investment specialist company, has explored various exit strategies since investing in SK Shieldus. Park Jin-hyo, CEO of SK Shieldus, enthusiastically pursued an initial public offering (IPO) immediately after his appointment in 2021, but market conditions such as rising interest rates and stock market crashes were unfavorable. SK Shieldus submitted a withdrawal report to the Financial Services Commission on May 6, 2022, four months after applying for preliminary listing review.

If EQT's acquisition is confirmed, it is expected that SK Shieldus will not attempt to relist. Existing financial investors (FIs) can exit by selling their shares. SK Square is estimated to realize a profit of around KRW 1 trillion from its SK Shieldus equity investment in about three years and three months. SK Square will sell about 33% of its 63.10% stake in SK Shieldus to EQT, recovering approximately KRW 500 billion in cash. This will resolve the burden of interest on borrowings and the failed IPO all at once.

Rapidly Growing AI Security... Will It Become a Global Company?

Market research firm MarketsandMarkets predicts that the global AI-based security market will grow at a compound annual growth rate (CAGR) of 21.9%, expanding from $22.4 billion (approximately KRW 30 trillion) in 2023 to $60.6 billion (approximately KRW 80 trillion) by 2028. Security companies are incorporating AI into numerous products such as AI CCTV and security software. Major countries worldwide are increasing R&D investments in AI-based security to foster AI-based security companies. In the physical security sector, AI-based video analysis solutions such as intelligent CCTV and facial recognition access control are gaining attention. According to a survey conducted by domestic security company S-1 targeting 85 clients, AI was selected as the leading technology in the security industry in 2023.

According to the investment banking (IB) industry, EQT will sign a contract next week to acquire about 30% of the 63.1% stake held by SK Square, the largest shareholder of SK Shieldus, and purchase all of the 36.87% stake held by the Macquarie Infrastructure Asset Management consortium, the second-largest shareholder. This will give EQT approximately 70% ownership of SK Shieldus, making it the largest shareholder.