"Now at the Bottom"... Stick Invest Enters SK Eco Environmental Business Acquisition

A Three-Way Battle with KKR and Carlyle Expected
Waste Market Anticipated to Rebound After Hitting Bottom
2 Trillion KRW Seen as Expensive... Price Disagreements Remain

Stick Investment has entered the race to acquire SK Ecoplant's environmental business division. Judging that the waste market has hit bottom and is rebounding, the strategy is interpreted as aiming to increase related investments and seek synergy effects.

According to the investment banking (IB) industry on the 28th, Stick Investment recently expressed its intention to acquire to SK Ecoplant and is reviewing the details and strategy. A three-way competition is expected with KKR and Carlyle, who had previously announced their acquisition intentions.

Earlier, SK Ecoplant has been pushing to sell 100% of the shares of 'RenewOne,' a waste landfill operator company acting as a mid-tier holding company of the environmental business division, and 75% of the shares of RenewUs, a water treatment and waste subsidiary. The entire environmental business division, except for the semiconductor-related electronic and electrical waste affiliate SK Tess, has been put up for sale.

Stick Investment has also been paying attention to the related market by investing in waste-related companies last year. Through its credit division (Stick Credit), it pursued an investment of about 100 billion KRW in the waste landfill company 'EcoSolution.' Seeing signs that the landfill unit price in the waste market had bottomed out and was rebounding, it moved to secure a position early. Entering the acquisition of SK Ecoplant's environmental business division is also part of this extension. Additionally, it noted that waste landfill, incineration, and water treatment can steadily generate cash flow.

However, there is a gap in price expectations. SK is asking for about 2 trillion KRW as the sale price. This is interpreted as an intention to recover all the amounts invested in water treatment, waste, and landfill businesses since 2020. However, private equity funds (PEFs) see this price as burdensome. Stick Investment is also unlikely to overextend. Stick Investment's undrawn commitments (dry powder) are currently known to be around 1.5 trillion KRW. While acquisition financing could secure more firepower, it is still cautious. An IB industry insider explained, "PEs consider the 2 trillion KRW price excessively high, and since SK Ecoplant urgently needs funds to resolve business restructuring and poor performance, it is uncertain whether they can get the full 2 trillion KRW." This is why even if competition among PEFs heats up, it is expected to be difficult for SK to receive the full 2 trillion KRW.

Meanwhile, the waste market is expected to exit recent sluggishness and enter a rising phase again. According to Samil PwC's report titled 'The Rekindling Environmental Waste M&A Market,' the unit price per ton of waste landfill was 120,000 to 130,000 KRW (based on incineration ash) during 2019-2020 when large corporations began entering, but it dropped to the 50,000 KRW range in 2023. This was due to the economic downturn starting in 2022 reducing waste generation and the oversupply effect caused by the opening of three landfill projects in the Chungcheong region.

However, as existing companies close and waste demand recovers, signs of a rebound have appeared since this year. Waste treatment unit prices are rebounding, and with increasing demand for private incineration outsourcing, the entire market is expected to shift to an upward trend. It is analyzed that if private equity fund operators acquire upstream and downstream related companies to form a value chain along this trend, they can significantly increase corporate added value.