[PE Now] Scaling Up by Combining... M&A's Core Strategy: "Bolt-On"

Bolt-On Reshapes Private Equity Returns
Single Company Has Limits... Market Dominance Rises Through Related Acquisitions
VIG Accelerates Aesthetic Medical Acquisitions, Building a Platform
Carlyle's KFC Korea Acquisition Expected to Create Synergy with Twosome Place

The "bolt-on" strategy is emerging as a key approach in the private equity fund (PEF) industry for increasing corporate value after acquisitions. The term "bolt-on" refers to combining Bolt A and Bolt B, and it involves acquiring companies in similar industries to create synergy and enhance the overall value of the sector.

VIG, Having Tasted Success with Bolt-On, Now Bundles Beauty Businesses

According to the investment banking (IB) industry on December 26, VIG Partners (hereafter VIG) is working to establish an integrated corporation centered around LG Chem's aesthetics division and Ultra V.

In August of this year, VIG acquired LG Chem's aesthetics division, which produces fillers and skin boosters, for 200 billion won. Shortly thereafter, it acquired management control of Ultra V, a company specializing in skin boosters, and is now pursuing the acquisition of ATGC, a producer of botulinum toxin (botox). The strategy is to build a platform that encompasses the entire aesthetic medical business.

Recently, VIG took a step closer to acquiring ATGC by joining its board of directors. VIG plans to place key aesthetic medical product lines under one organization to improve the efficiency of business-to-hospital (B2H) sales and marketing. If the acquisition of ATGC is completed, the product portfolio is expected to be further strengthened.

Previously, VIG achieved excellent returns through the bolt-on strategy. A representative example is the funeral service company Preed Life.

Since 2016, VIG has acquired companies such as Good Life, Geumgang Culture Hub, and Modern Comprehensive Funeral Service. In 2020, VIG acquired Preed Life for approximately 260 billion won and implemented a bolt-on strategy by merging the previously acquired companies into Preed Life. As a result, Preed Life quickly rose to the top of the industry. This year, VIG sold Preed Life to Woongjin Group for 882.9 billion won, achieving a return of more than four times the original investment.

Bolt-On: The Key Is Not Just Expansion, But Synergy Creation

Bolt-on cannot succeed with simple external expansion alone. Rather than the price of the acquisition target, it is more important how easily it can be integrated with the existing company. The key to success is integrating systems to reduce redundant costs and expanding business areas to strengthen market dominance.

Riena (formerly KJ Environment) of EQT Partners is another representative case of the bolt-on strategy. Last year, EQT Partners acquired multiple recycling companies, including KJ Environment, from Genesis Private Equity. This year alone, EQT Partners added companies in the same industry, such as JS Resources, Gyeongin Ecotech, and Daeyoung Enterprise's recycling division. EQT Partners expanded its business sites, previously concentrated in the metropolitan area, nationwide, thereby increasing its market dominance.

Praxis Capital transformed the IT solutions company BiznesOn through the bolt-on strategy. Praxis Capital combined companies such as Glossign (electronic contracts), Planit Partners (big data), Nudge Partners (accounting and finance), and Shiftee (human resources) with BiznesOn, converting it into a comprehensive software-as-a-service (SaaS) company. Last year, Praxis Capital sold its controlling stake to Skylake Equity Partners, recovering more than three times its original investment.

Bolt-on Strategy Image. ChatGPT

Synergy Expected from KFC and Twosome Place

The market is also expecting synergy from the bolt-on strategy in recent mergers and acquisitions (M&A). One example is the bolt-on between KFC Korea, recently acquired by global PEF Carlyle, and its existing portfolio company, the coffee franchise Twosome Place.

On December 19, Carlyle acquired 100% of KFC Korea from Orchestra Private Equity for just over 200 billion won. Previously, in 2021, Carlyle acquired the coffee franchise Twosome Place for about 1 trillion won. It is reported that Carlyle pursued the KFC Korea investment as a bolt-on to Twosome Place during this acquisition process.

Industry analysts say that Carlyle intends to transfer KFC Korea's expertise in store expansion and profitability improvement to Twosome Place. KFC Korea operates the KFC brand domestically through a master franchise agreement with Yum! Brands, a global food franchise company with about 55,000 stores worldwide. Carlyle also owns KFC Holdings Japan, and this transaction is expected to further solidify its strategic partnership with Yum! Brands.

Juno Hair, the largest hair salon franchise in Korea, is also expected to pursue a bolt-on strategy in the future. Blackstone, the world's largest PEF, acquired Juno Hair for about 800 billion won. Blackstone has already demonstrated the bolt-on strategy in its portfolio with companies such as GeoYoung, a pharmaceutical distributor, and Thermo Holdings, a US-based company specializing in electrical, plumbing, and control services.

An IB industry official explained, "Blackstone aims to expand Juno Hair overseas, and is considering acquiring additional beauty brand companies that are popular abroad. If this happens, not only the B2C sector but also the B2B business area can be strengthened, so an aggressive bolt-on strategy is expected."