[M&A Insights] What Kind of Company Is EcoBeat, the 'Prime Asset' to Save Taeyoung Construction?

EcoBit Sale Highlighted as Key to Workout Self-Rescue Plan
Stable Growth and Performance Through Waste Disposal Business
Taeyoung Group Cash Cow... Valued at 2-3 Trillion Won

"Substances no longer needed for human life or business activities." This is how South Korea's Waste Management Act defines waste. Every day, hundreds of thousands of tons of industrial waste are generated domestically.

Recently, in connection with the real estate project financing (PF) insolvency crisis, the merger and acquisition (M&A) of a waste disposal company has become a hot topic. This is because Taeyoung Group included the 'sale of Ecobit' as one of several self-rescue plans to support the workout (corporate financial restructuring) of Taeyoung Construction. Why is Ecobit, a comprehensive waste disposal company, regarded as a hidden card to save Taeyoung Construction? What role has Ecobit played in the domestic waste industry?

Ecobit, No.1 in the 'Oligopoly' Waste Business Market

In 2021, out of the total 197 million tons of waste generated in South Korea, 88.5% was industrial waste. Therefore, domestic waste consignment processing companies focus more on industrial waste than on household waste.

The industrial waste disposal industry is a high-entry-barrier oligopoly market. Researchers Heo Min-ho and Lee Hee-kyung from the Korea IR Council explained, "New entrants must meet stringent requirements such as related legal regulations, facilities and equipment, and technical capabilities. Large-scale investment capital is also required for this." Since disposal facilities are perceived as nuisance facilities, it is even more difficult for new entrants if residents oppose them.

Ecobit was established in 2021 through the merger of Taeyoung Group’s TSK Corporation and the foreign private equity firm Kohlberg Kravis Roberts (KKR)’s Eco Solution Group, becoming the top landfill market operator. It owns eight landfills nationwide. It also enjoys synergy effects from the water treatment business inherited from TSK Corporation.

Ecobit has also expanded through waste-to-energy businesses. It is broadening its scope to include value-added production through incineration steam and heat, secondary battery recycling, and soil remediation. Last year, its sales and operating profit were 756 billion KRW and 125.3 billion KRW respectively, recording a high operating profit margin of about 17%. Having demonstrated steady profitability for several years, Ecobit has served as Taeyoung Group’s 'cash cow,' which is why it is called a 'prime company' and a 'savior to rescue Taeyoung Construction.'

M&A Market Closely Watching the Possibility of Joint Sale

Taeyoung Group plans to sell major affiliates including Ecobit and use the proceeds to revive Taeyoung Construction. Industry insiders expect Ecobit’s valuation to reach between 2 trillion and 3 trillion KRW.

Ecobit’s shares are equally held by Taeyoung Group’s holding company TY Holdings and KKR. Recently, both parties agreed to jointly sell 100% of Ecobit’s shares. At a press conference, Choi Geum-rak, Vice Chairman of Taeyoung Group, said, "KKR has promised to actively cooperate in the sale of Ecobit. The collateral value of the 50% stake is 1.5 trillion KRW, but the actual sale price will be much higher."

However, whether Taeyoung Construction will normalize as planned and whether Ecobit will find a new owner to operate stably remains to be seen. Given the high valuation, even participating in the bidding is not easy. The industry strongly anticipates that a large overseas private equity fund or asset management firm with strong financial power will acquire it. Stonepeak Infrastructure Partners, Macquarie Asset Management, EQT Partners, and Keppel Infrastructure Trust are considered strong candidates.

Above all, KKR’s final consent is required for Ecobit’s sale, and there is a possibility that KKR may buy the remaining shares. According to Ecobit’s business report, KKR received a total dividend of about 80 billion KRW from 2020 to 2022, which exceeded the net profit paid out as dividends. KKR has invested about 1.3 trillion KRW in Ecobit so far. In January last year, KKR lent 400 billion KRW to TY Holdings in exchange for a 50% stake in Ecobit as collateral. It is reported that the contract includes a clause allowing KKR to acquire that stake if TY Holdings defaults due to financial risk.

The future of the waste business is not entirely bright. Domestic waste generation grew rapidly by 11.5% and 7.4% in 2019 and 2020 respectively, but growth slowed to 1.3% in 2021. The increase was likely modest in 2022 and last year due to economic slowdown. The industry must also prepare for changes such as a decrease in landfill and incineration treatment ratios and an increase in recycling rates. Landfill and incineration treatment prices peaked in 2020-2021 and have been declining since. Researcher Heo said, "Unless waste generation increases sharply, landfill treatment prices are unlikely to rise again soon. Prices vary significantly by region and company depending on waste supply and demand, remaining landfill capacity, and waste types." The M&A market is closely watching whether Ecobit will be fairly valued, help revive Taeyoung Construction, and take off under a new management system.