[M&A Insights] Kakao Games Moves to Exit Golf Business... A Signal for Kakao Group Restructuring?

Acquisition of Maum Golf for 37 billion won...
Shaken by a slump in the golf industry
Kakao prepares to sell other affiliates as well...
Linked to group-wide restructuring

"In golf, every day and every hole is different." "Greed only leads to more mistakes."

These are the words of Park Seri, a legendary figure in Korean golf, spoken during the Paris Olympics broadcast last year.

This sentiment closely mirrors the current situation of Kakao Games, which is now seeking to sell its screen golf subsidiary, Kakao VX. Having made a bold entry into the golf industry in 2017, Kakao Games has now announced its intention to withdraw from the golf business. On April 21, M&A Insights takes a closer look at the background and market outlook for this move.

Acquisition of Maum Golf for 37 billion won... Shaken by a slump in the golf industry

The history of Kakao VX begins with Maum Golf, a screen golf company founded in 2012. The company was established by CEO Moon Taesik, a founding member of Hangame, who leveraged his online game development experience to incorporate gaming elements such as network matches and item battles into the brand "T-up Vision." In 2017, Kakao Games acquired 100% of Maum Golf through a share swap and changed its name to Kakao VX. The company also announced its goal to create a new genre of games by applying artificial intelligence (AI), augmented and virtual reality (AR/VR), and location-based (LBS) technologies to both games and sports. CEO Moon continued to lead the company.

Kakao attracted the attention of younger generations and golf beginners with its signature casual approach. In 2020, the company unified its brand under "Friends Screen," featuring Kakao Friends characters, and expanded into various businesses such as screen golf practice centers, golf course management, and a golf reservation platform. In 2021, the company was valued at 500 billion won and attracted 120 billion won in investment from One Asia and Stonebridge Capital. In 2023, Kakao VX entered the global market through joint ventures in the United States and Vietnam.

However, despite its impressive outward growth, the company struggled to achieve solid internal results. Kakao VX posted 173.5 billion won in revenue and 15.1 billion won in net profit in 2022, but the following year, revenue dropped to 146.3 billion won and the company recorded a net loss of 10.8 billion won. Last year, revenue fell further to 124.1 billion won, with a net loss widening to 18.4 billion won.

External industry trends also played a role in these results. The golf industry, which had seen explosive demand growth in the early 2020s, cooled rapidly as the COVID-19 pandemic ended. Both the number of visitors to golf courses and golf equipment sales began to decline. The screen golf market, which had grown on the back of MZ generation (Millennials + Generation Z) participation, faced profitability challenges due to declining demand and rising fixed costs. As a result, the company restructured, retaining only its core businesses such as screen golf and golf course reservations, while exiting other areas like golf equipment and non-fungible tokens (NFTs). It also closed its online golf mall website and offline stores.

Kakao prepares to sell other affiliates as well... Linked to group-wide restructuring

Kakao Games has formalized the sale of Kakao VX through its business reports. However, progress has been slow due to funding issues and differing views on valuation with Murex Partners, the preferred bidder. There are reports that the asking price has dropped from the initial expectation of 500 billion won to the current 150 billion won.

Oh Donghwan, an analyst at Samsung Securities, commented, "Kakao Games has classified the results of Kakao VX as discontinued operations as it pursues the sale this year. Kakao VX recorded an operating loss last year, and its deficit is widening due to the contraction in the golf market." He added, "While the sale of a 65% stake could secure funding, the actual sale price may fall short of the book value of 342 billion won due to the deteriorating domestic investment market."

The Kakao Friends Golf online store, where product sales were completely suspended on December 13 last year.

However, some believe that the sale of Kakao VX is only a matter of time. A company official stated, "At the end of last year, we established a plan to sell the golf business division, consisting of Kakao VX and its subsidiaries, and this plan will be executed this year. We intend to sell the assets and liabilities of the golf business division, and have classified its operating results as discontinued operations." The official added, "We are currently seeking approval from non-controlling shareholders to complete the sale, and the likelihood of a deal is high."

Meanwhile, Kakao is already pushing to sell non-core affiliates at the group level. The company had previously been criticized for its "octopus-style management," operating more than 150 affiliates, including flower delivery and hair salon reservation services, but as of the end of last year, it had reduced this number to 120. In addition, during the acquisition of SM Entertainment, Kakao founder Kim Beomsoo was indicted on charges of stock price manipulation. This highlights the urgent need not only for management efficiency but also for a revamp of the group's image and a reduction in governance risks.

If the sale of Kakao VX is finalized, Kakao Games is expected to further strengthen its core capabilities centered on gaming. As the "Kakao-style expansion strategy" that has lasted for more than a decade faces a turning point, the investment banking industry is watching closely to see if Kakao VX will find a new owner.