[Why&Next] Distribution M&A Faces 'New Owner Search' Difficulties... TMEF Also Hit by Cold Water

Chilly Distribution M&A Market 'Adding Insult to Injury'
e-Commerce 11st and SSG.com M&A Stagnant
Homeplus Express Sparks Controversy in Political Circles

The search for new owners of merger and acquisition (M&A) targets in the distribution industry is facing difficulties. Amid this, the Tmon-Wemakeprice (Timep) incident has further cooled the market sentiment.

According to the investment banking (IB) industry on the 31st, Homeplus Express, the second-largest domestic corporate supermarket (SSM) operator, has been on the market for nearly two months, but there has been no progress other than rampant acquisition rumors. Recently, e-commerce platform 11st saw fresh food platform Oasis emerge as a strong acquisition candidate, but it has since faded from the spotlight. SSG.com, which is pushing to sell a 30% stake held by financial investors (FI), has also not reported any significant news.

Worst Case Avoided but Exit Still 'Yearning'

In the case of 11st, it nearly got caught up in the recent Timep incident. Last year, a leading acquisition candidate in negotiations was Qoo10, the parent company of Timep. The valuation at the time was about 1 trillion KRW, but disagreements over deal terms led to the deal falling through. A representative from SK Square, 11st’s parent company, said, "Although we cannot disclose details, Qoo10 proposed quite unreasonable terms that we could not accept." As 11st’s sale stalled, there were talks that it should have been sold to Qoo10, but ultimately the worst was avoided.

Currently, 11st’s sale is led by the Nile Holdings Consortium, composed of FI entities including the National Pension Service, private equity fund (PEF) manager H&Q Korea, and Saemaeul Geumgo. The sellers hoped to find a buyer in the first half of the year, but the process has extended into the second half. Recently, Oasis emerged as a strong acquisition candidate, but due to differences in terms between the parties and the Timep incident, it has become difficult to be optimistic about the deal. An industry insider said, "There were talks as if the deal was finalized, but that is far from the truth," adding, "The possibility still remains."

"Distribution M&A Market Faces Growing Negative Sentiment"

The e-commerce industry as a whole is closely watching the Timep incident. Another e-commerce company, SSG.com, also has a 30% FI stake on the market. This stake belongs to PEF managers Affinity Equity Partners and BRV Capital Management, who previously invested in SSG.com, valued at about 1 trillion KRW. Shinsegae is directly negotiating the sale. Although there have been no reports of new investors being attracted, unlike 11st, safeguards have been put in place for investment recovery (exit) following conflicts over put options. If an investor is not found by the end of the year, the FI stake must be purchased by Shinsegae.

Although in a different business area, Homeplus Express, part of the same distribution industry, has seen various companies such as AliExpress, Coupang, and Nonghyup emerge as candidates, all have denied acquisition rumors. As the 'whole sale' of Homeplus proved difficult, the company pushed for a 'split sale' of the SSM Express as a last-ditch effort, but market response has fallen short of expectations. Furthermore, the Homeplus labor union strongly opposes the split sale, turning the sale issue into a political matter. Even the selection of the National Pension Service’s entrusted manager for Homeplus’s largest shareholder, MBK Partners, has come under scrutiny. The Democratic Party of Korea has proposed an amendment to the National Pension Act targeting MBK Partners.

Jung Kyung-soo, head of the M&A Center at Samil PwC, said, "The M&A situation in the distribution sector was already unfavorable, but the Timep incident has intensified the negative atmosphere in the market," adding, "Sectors with poor recent operating cash flow are experiencing difficulties in attracting investment, and distribution is a prime example." Jung added, "As liquidity in the M&A market has recently decreased, money is increasingly concentrated only where it is already flowing, exacerbating the rich-get-richer phenomenon, which will cause more concerns for sellers in the distribution industry."