[K-INVESTORS]⑥ Kang Min-gyun, CEO of JKL Partners, "Participating in HMM Acquisition... Harim Group is a 'Successful Experience' Partner"

Participation in Acquisition Battle for Korea's Largest Container Shipping Company HMM
Building Trust with Harim Group through Various M&A Deals Including Pan Ocean Acquisition
Emphasizing Logical and Rational Procedures and Processes to Persuade Each Other
Plan to Complete Sale of Lotte Insurance by First Half of Next Year

Editor's NoteThe Korean capital market is more turbulent than ever due to greed and selfishness. Manipulations and foul play are rampant. However, many investors have carved out their own investment worlds and emerged as role models for individual investors, having endured everything from the foreign exchange crisis, the dot-com bubble, the global financial crisis, to COVID-19. Through meetings with these investors, we aim to convey the value of money through war-like stories of the capital market, their philosophies, failures, and successes. Starting now, we share stories from various experts, including the chief investment officers of domestic pension funds who have become global 'big players' in value investing and activism, leaders of private equity funds and asset management firms, and CEOs of financial companies.

This year, the deal attracting the most attention in the domestic mergers and acquisitions (M&A) market is the acquisition battle for HMM, the largest container shipping company in Korea. We met with Kang Min-gyun, CEO of JKL Partners, a private equity fund (PEF) that teamed up with Harim Group in this acquisition. The HMM acquisition is a 'big deal' with a sale price mentioned between 5 to 6 trillion KRW. Kang recently stepped down as chairman of the Korea Private Equity Fund Association, handing over the position to Ra Min-sang, CEO of Praxis Capital. While serving as chairman, Kang firmly declined interviews, stating that as the head representing all PEF operators, he could not use external contacts for personal purposes.

Challenging HMM Acquisition Hand in Hand with Harim

"The main bidding for HMM will take place next month, and we expect the Stock Purchase Agreement (SPA) process to be completed within this year. Harim Group and JKL have worked hard in preparation. In the HMM deal, Harim Group is the main player rather than us, similar to how we handled Pan Ocean before."

Considering the scale and industrial significance, HMM is not an easy asset. Although there is a possibility of a failed bid, the Korea Development Bank plans to receive final bids from qualified candidates by the 23rd of next month, select a preferred negotiator, and complete the SPA within the year, aiming to finish the sale on schedule.

"It is said that HMM earned in the COVID-19 pandemic what would normally take 50 to 60 years to make, due to the surge in freight rates. Such an event is historically rare. HMM is the only Korean-flagged shipping company and leads a key national industry. It would not be sold to a PE. That is why strategic investors (SI) like Harim Group are stepping forward. Harim Group ranks 27th in the business world and successfully manages Pan Ocean, Korea's top bulk shipping company. Although container shipping and bulk shipping differ, I believe Harim Group has the capability to manage volatility and improve the business structure."

The relationship between Harim Group and JKL Partners is quite long-standing. They have built a trusted partnership through shared successful experiences.

"Harim Group is a reliable partner with an investment DNA that continuously shows interest in investments. Around 2006, JKL advised Harim Group on the sale of NS Home Shopping. Although the deal ultimately fell through, a good partnership was established during the process. We discussed using NS Shopping's cash flow to pursue other M&A opportunities. Later, we advised on acquisitions like High Pork and Clean Pork, and from 2009, JKL operated a PEF investing in Harim Group's key affiliate, Farmsco, generating profits. These positive experiences led us to collaborate on the Pan Ocean acquisition. Trusting a partner is one of the greatest assets."

Common-Sense Decision-Making Process is Most Important

Kang Min-gyun places the highest importance on a common-sense decision-making process. He avoids unilateral decisions and values logical, rational procedures where experts and stakeholders gather to persuade each other.

"From my experience with various companies, owner-operated firms with a rational mindset grow into mid-sized or large corporations. Instead of doing everything alone, they hire professional CEOs, delegate responsibility and authority, and nurture second-in-commands. When acquiring new companies, they appoint new CEOs and entrust them while owners maintain accountable management. This avoids artificial and unilateral decisions. Professional managers are industry experts, so even major shareholders cannot simply dictate terms. I believe ownership based on common sense, rationality, and procedural respect is necessary in our society."

Kang emphasized that this approach is also crucial in fund management. Funds must act as the best agents and must not misuse clients' money as their own. Transparent and rational decision-making is essential for sustainable fund management.

"The same applies to funds. Since the capital managed is never my own, any investment decision must be supported by a process of mutual persuasion and sound debate about the rationale and background. No one can predict outcomes, but if rational procedures are followed, results will be acceptable to all. As a fund managing others' money, morality and transparency are paramount. In Korea, private equity funds have a 'hit-and-run' image due to past cases like Lone Star, but Korean-style private equity funds are different. Early funds like Report Fund, IMM Private Equity, and Stick Investment have established themselves well."

He stressed that this is exactly what the Korean capital market should demand from Korean PEs: solving accumulated problems that companies grown under strong individual ownership cannot easily resolve, using the common sense of the capital market. Maximizing transparency and efficiency, and creating flexible, growth-oriented business structures.

"One of the fund's important missions is managing institutional capital. While increasing returns for limited partners (LPs) is paramount, improving transparency and non-financial indicators of Korean companies is also a major role for Korean PEs. I believe they should be leading forces for change. Currently, succession issues are a major topic in Korean companies. These companies are industrially excellent and necessary but face problems they cannot solve alone. Korean PEs need to acquire such companies, improve them into better firms, streamline operations to increase value, globalize, and serve as bridges enabling employees to work meaningfully. JKL has done well so far, which is why major LPs entrust us with their money annually."

Company Name from Initials of CEOs J (Jung Jang-geun) - K (Kang Min-gyun) - L (Lee Eun-sang), Three Makes Us Fearless

JKL Partners was founded in 2001 by CEOs Jung Jang-geun, Kang Min-gyun, and Lee Eun-sang. The company name JKL comes from their initials. All three, formerly of the accounting firm Samjong KPMG, initially focused on corporate restructuring before expanding into PEF management in 2004. JKL Partners is recognized for its strength in improving company fundamentals after acquisitions.

A representative example is Pan Ocean, whose management rights were acquired jointly with Harim Group in 2015 for 1 trillion KRW. After exiting court receivership, Pan Ocean grew into Korea's largest bulk shipping company with annual operating profits exceeding 700 billion KRW. JKL Partners developed turnaround expertise and negotiation skills through investments in distressed companies and restructuring advisory. Another key portfolio company, Lotte Non-Life Insurance, returned to profitability within two years of a change in major shareholders, focusing on fundamental corporate improvement. Additionally, JKL made minority investments in high-growth companies like Krafton and Yanolja Company, delivering high returns to LPs. Across seven funds (based on liquidation), combining buyouts and minority investments, the internal rate of return (IRR) reached 20.8%.

"Though we worked at an accounting firm, we were deal guys uninterested in audit work. We were like a special task force within the firm. Through capital market experience, although accountants, we mainly handled M&A consulting and corporate financing services before joining forces to start JKL. CEO Lee is a meticulous investor. CEO Jung is not very talkative but charismatic. All three served as accounting officers in the military; Lee and I met as military comrades, and Jung rejoined Samjong after discharge, where we met in the same department."

Born in 1968 (Jung), 1969 (Kang), and 1970 (Lee), the three decided to start the company around age 30 in 2001. At the time, they thought if it failed, they could at least open an accounting office together.

"When Samdong Accounting merged, many accountants moved to Samjong KPMG. Suddenly, we feared being assigned to audit departments, which did not suit us at all. So we left. At the start, I felt that while I might struggle alone, together the three of us could succeed. Entrepreneurship is scary, but with an older brother and a younger brother, it felt reassuring. If things got tough, we could just open an accounting office together (laughs)."

Though close friends, differences in opinion arise during business. However, JKL's strength lies in decision-making through discussion and persuasion.

"Conflicts happen all the time. But resolving them is collective intelligence. If you cannot persuade others, you are persuaded. This applies to all processes. When we join boards of companies we invest in, even as major shareholders, we cannot act arbitrarily. We listen to professional managers, judge whether their opinions are right or wrong, and then persuade others with our views. The three of us make countless decisions running the company; no one is always right or always wrong. So we go through logical persuasion. Now, junior partners like Chae Dae-kwang, Choi Won-jin, and Kim Yong-seok enrich our shortcomings."

'High Interest Rates · High Inflation · Low Growth' ? A Time of Intense Reflection and New Challenges

PE buyout work involves many stakeholders. It is not simply buying and selling a company like goods or stocks. The market now highly values how a company changes during the PE's ownership, including non-quantitative indicators.

"Did this fund just strip the company of money? Have factors like female employee ratios, employee welfare, and salary increases improved? ESG (Environmental, Social, Governance) evaluation metrics are now scrutinized. Unlike stock traders who freely buy and sell shares, buying and selling companies involves complex work including organization, culture, competitiveness, and industry outlook, often paying a premium. If a PE sells a company for profit but the buyer suffers losses, it damages reputation. We must avoid being known as PEs who leave nothing behind. We need to make companies more efficient and create structures that increase value."

PEs are deeply contemplating changes in macroeconomic, industrial, and geopolitical environments. In a high-interest, high-inflation, low-growth structure unseen in half a century, they question whether past success models will work in the future. Kang is no exception. His refusal of interviews while chairing the PEF Association was partly because he witnessed firsthand the struggles of emerging and small PEs in the capital market.

"In this economy, we plan to hold the bat short. We intend to raise a buyout fund early next year, aiming for 700 to 800 billion KRW rather than being overly ambitious. Funds over 1 trillion KRW tend to involve auction deals with competitive bidding, but we plan to proceed more privately."

The sale of Lotte Non-Life Insurance is another important mission to complete by the first half of next year. Recently, JP Morgan was selected as the lead advisor, and they are seeking buyers both domestically and overseas.

"We prepared in the second half of this year and aim to sell by the first half of next year. Domestically, Shinhan, Woori, and Hana banks are mentioned as potential buyers since they lack non-life insurance companies. Besides domestic financial groups, European and Taiwanese financial groups are interested. We will prepare well and share good news."

▶ Kang Min-gyun, CEO of JKL Partners,

graduated from Daesin High School in 1990 and entered Seoul National University’s Business Administration Department. He joined Samjong Accounting Firm immediately after graduating in 1994. He completed graduate studies at Seoul National University’s Business School in 1996 and co-founded JKL Partners with Jung Jang-geun and Lee Eun-sang in 2001. He served as chairman of the Korea Private Equity Fund Association from October 2022 until October this year.