[PE Portfolio] ④ 'Value-Up Master' UCK Partners, Aiming for the Second 'Gongcha Myth'

Osstem Implant and Sulbing 'Value Up'... Spotlight on Recreating the 'Gongcha Myth'
Mid-cap Buyout Specialist... Unique 'Exclusive Deal Sourcing' Experience
F&D Net Exit Imminent, First Fund Liquidation in Sight

Editor's NoteThis year marks the 20th anniversary of the introduction of the private equity fund (PEF) system in South Korea, and the role of the domestic PEF industry is growing. PEFs acquire management rights of undervalued companies, increase their value, and then resell them in the mergers and acquisitions (M&A) market to generate profits. They also absorb companies with high future value but deteriorated financial soundness when such companies come onto the market, and attempt hostile M&As on companies with weakened governance such as controlling shareholder risks. As the history of the PEF industry accumulates, the number of portfolio companies and employees held by Korea’s mega PEFs have far surpassed those of many large corporate groups. Beyond playing the role of a catalyst to prevent stagnation in the corporate ecosystem, the performance of PEF-owned companies now significantly influences the future of our industry. Asia Economy analyzes the performance and results of portfolio companies held by leading domestic PEFs.

UCK Partners is the Korean branch of the global PEF operator Unison Capital Group, established in 2012. After separating from Unison Capital Group in 2022, it rebranded from Unison Capital Korea to UCK Partners, transforming into a 'homegrown PEF.' It holds the largest track record in Korea with 19 mid-cap (small and medium-sized enterprises and mid-sized companies) buyout deals. Last year, it formed its third blind fund worth 1.1 trillion KRW and is active as a top-tier domestic house. It continues a streak of successful exits such as Gongcha and Medit, attracting continuous investments from institutional investors. Notably, the National Pension Service invested in all three blind funds and named UCK Partners an 'Excellent Asset Manager' in 2022. The accumulated assets under management (AUM) are approximately 3 trillion KRW, with a cumulative internal rate of return (IRR) of about 40%.

In April last year, UCK Partners formed a consortium with MBK Partners to acquire implant manufacturer Osstem Implant. This was the largest stake acquisition via a tender offer in the history of the domestic capital market. The stake acquired through the tender offer was 71.16%. Including treasury shares (6.03%) and founder Chairman Choi Kyu-ok’s 18.90% stake, the consortium secured a total of 96.1% ownership. Osstem Implant was delisted after meeting the voluntary delisting requirement (major shareholder ownership exceeding 95%). The total investment amount was 2.5 trillion KRW. Of the 1.5 trillion KRW excluding 1 trillion KRW in acquisition financing, half (750 billion KRW) was raised from UCK Partners’ third fund, and the other half was executed from MBK Partners’ fifth fund.

Osstem Implant’s Smooth Start... Focus on 'Value-Up'

Osstem Implant is a global leading company holding the number one market share (16%) in the worldwide implant market. It reached the top position globally through continuous research and development (R&D) and management innovation, including developing Korea’s first dental implant. Domestically, it holds a majority market share of 56%. Since dental clinics often use products from multiple companies simultaneously, Osstem Implant products can be found in most dental clinics across Korea.

One year after the M&A, Osstem Implant is sailing smoothly. In 2023, sales reached 1.208 trillion KRW, and operating profit was 242.8 billion KRW, up 14.7% and 3.5% respectively from the previous year. For UCK Partners, this marks a solid start. While establishing a 1 trillion KRW sales base, it also solidified its position as the global number one company. Osstem Implant’s overseas sales ratio reached an all-time high of 65.8% (795.6 billion KRW) last year, with products sold in about 100 countries. Overseas sales have steadily increased since surpassing 50% for the first time in 2017, overtaking domestic sales.

The challenge for Osstem Implant is to strengthen its leading position in existing core markets such as China and Asia, while increasing market share in the Americas, ranked 4th to 5th. To this end, it is focusing on organizational and infrastructure improvements and establishing governance aligned with global standards. Since employees accustomed to 'owner-led' management need to change their mindset and culture, this is not a quick fix. The decision to delist was also related to this, as a non-listed company is considered more advantageous for efficient decision-making and management.

Alongside expanding overseas markets and improving governance, UCK Partners’ core 'value-up strategy' focuses on expanding adjacent businesses such as oral scanners and CT X-rays centered on implants. The know-how accumulated through Medit, a 3D oral scanner company also in the medical device sector, is expected to be fully leveraged. Medit, acquired by UCK Partners in 2019, grew its sales 2.6 times and operating profit 2.9 times within two years. MBK Partners acquired it for 2.4 trillion KRW in 2022, successfully exiting in just three years. The return was about 6.5 times the invested principal, with an IRR of approximately 80%.

Recreating the 'Gongcha Legend' with Sulbing

Sulbing is another company in which UCK Partners invested through its third fund. After nearly a year of discussions with the founder, it acquired management rights last year. The investment amount was 140 billion KRW. This was a case that highlighted UCK Partners’ unique 'sole deal sourcing' expertise. Sole deal sourcing refers to discovering investment opportunities by directly meeting company owners rather than through public bidding. Osstem Implant’s investment was also finalized after more than 30 meetings with the founder. Of the 19 investments UCK Partners has made up to last year, 18 were conducted through such sole deal sourcing.

UCK Partners’ proven experience in food and beverage (F&B) investments, demonstrated through the success of Gongcha, was decisive in closing the deal. Gongcha was acquired in 2014 for 80 billion KRW and sold in 2019 to the US PEF operator TA Associates for 350 billion KRW. The IRR was an excellent 47%, and it was a landmark case for domestic PEFs. It was the first case where a domestic private equity fund acquired an overseas franchise headquarters, enhanced corporate value, and then sold it. The Gongcha story was even included as a case study in the curriculum of Harvard Business School (HBS). CEO Kim Soo-min regularly travels to the US to give lectures at Harvard.

The market is watching whether Sulbing will recreate the 'Gongcha legend.' Founded in 2013, Sulbing is the number one franchise in Korea’s shaved ice market, operating about 560 stores. It has expanded into more than 10 countries including the US, China, and Japan. Total store sales in 2023 were 249 billion KRW, growing at about 10% annually. However, after 10 years of franchise history, its sophisticated image has faded somewhat. It plans to increase revisit rates and customer loyalty through 'enhanced customer experience,' a focus of modern B2C (business-to-consumer) companies. The goal is to maximize its potential in the domestic market. Additionally, it will strengthen headquarters functions to systematize management, finance, and performance control by store as a foundation for growth. Overseas, it plans to expand territory through 'tailored strategies' suited to local conditions in each country.

Finale for the First Fund... F&D Net Exit Imminent

This year, UCK Partners is also focusing on the exit of F&D Net, an investment from its first fund (established in 2013). If the sale proceeds smoothly, the first fund, which has a 10-year maturity, can be liquidated. Multiple potential buyers have shown strong interest, so the sale is expected to be completed within this year. KB Securities is the lead manager, with a preliminary bidding scheduled for this month.

F&D Net is the number one company in health functional foods for mothers and infants. UCK Partners acquired it in 2017 for 85 billion KRW. Its flagship products are the probiotic 'Lacpido' and prenatal supplement 'Dr. Moms.' It has secured three sales channels: hospitals, pharmacies, and online. Offline clients number over 6,500 nationwide. The company has steadily grown since UCK Partners’ acquisition. At the time of acquisition in 2017, F&D Net’s sales were 42 billion KRW. In 2022, sales reached 61 billion KRW, operating profit was 5.7 billion KRW, and EBITDA was 7.2 billion KRW. EBITDA refers to a company’s cash-generating ability from operating activities.