[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 Sy

In the private equity fund (PEF) industry, “bolt-on” has emerged as a core strategy for boosting corporate value after an acquisition. Bolt-on, literally meaning that Bolt A and B are joined together, is a strategy in which a firm acquires companies in similar sectors to enhance synergies and, in turn, raise the value of the entire industry.

VIG, Having Tasted Success with Bolt-ons, Now Bundles Beauty Assets

According to the investment banking (IB) industry on the 26th, VIG Partners (VIG) is pushing to establish an integrated corporation centered on LG Chem’s aesthetics division and Ultra V.

In August this year, VIG acquired LG Chem’s aesthetics division, which produces fillers and skin boosters, for 200 billion won. Soon afterward, it acquired management control of skin booster specialist Ultra V, and is now seeking to acquire ATGC, a producer of botulinum toxin (Botox). The strategy is to build a platform that covers the entire aesthetic medical business.

Recently, VIG moved one step closer to the acquisition by joining ATGC’s board of directors. VIG’s strategy is to place core aesthetic medical product lines under a single organization and improve the efficiency of sales and marketing targeting hospitals and clinics (B2H). If the acquisition of ATGC is completed, the product portfolio is expected to be further strengthened.

VIG has previously achieved strong exit performance through its bolt-on strategy. A representative case is the funeral service provider Preedlife.

Since 2016, VIG has been acquiring companies such as Joeun Life, Geumgang Culture Hub, and Modern Comprehensive Funeral Service. In 2020, it acquired Preedlife for about 260 billion won and implemented a bolt-on strategy by absorbing and merging these companies into Preedlife. Preedlife quickly rose to the No. 1 position in the industry. This year, VIG sold Preedlife to Woongjin Group for 882.9 billion won, earning more than four times its invested capital.

Bolt-ons Must Create Synergy, Not Just Expand Scale

A bolt-on cannot succeed through simple expansion of scale alone. Rather than the price of the acquisition target, how easily it can be attached to the existing company is more important. The key to success is integrating systems to eliminate overlapping costs and expanding business areas to strengthen market dominance.

Riena (formerly KJ Environment) of EQT Partners is also a representative example of a bolt-on strategy. EQT Partners, which last year acquired multiple recycling companies including KJ Environment from Genesis Private Equity, additionally acquired peers such as JS Resources, Kyungin Ecotech, and the recycling division of Daeyoung Enterprise this year alone. EQT Partners expanded its previously Seoul metropolitan area-concentrated business sites nationwide, thereby increasing its market dominance.

Praxis Capital transformed IT solution company Businesson through a bolt-on strategy. Praxis Capital combined companies such as Glosign (electronic contracts), Planit Partners (big data), Nudge Partners (accounting and finance), and Shiftee (HR) into Businesson and converted it into a comprehensive Software-as-a-Service (SaaS) provider. Last year, Praxis Capital sold its controlling stake to Skylake Equity Partners, recovering more than three times its invested capital.

Bolt-on Strategy Image. ChatGPT

Synergies Expected Between KFC and Twosome Place

In the market, synergies based on bolt-on strategies are also expected from recent merger and acquisition (M&A) cases. One such case is the bolt-on between KFC Korea, recently acquired by global PEF Carlyle, and its existing portfolio company, coffee franchise Twosome Place.

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

Industry observers analyze that Carlyle intends to transplant KFC Korea’s know-how in store expansion and profitability improvement into Twosome Place. KFC Korea operates the KFC brand domestically under a master franchise agreement with restaurant franchise company Yum! Brands, which has approximately 55,000 stores worldwide. Carlyle also owns KFC Holdings Japan, and this transaction is expected to further solidify its strategic partnership with Yum! Brands.

Junohair, the largest hair salon franchise in Korea, is also expected to be a candidate for a bolt-on strategy going forward. Blackstone, the world’s largest PEF, acquired Junohair for about 800 billion won. Blackstone has already showcased bolt-on strategies in its portfolio, including pharmaceutical distributor Geo Young and U.S.-based electrical, plumbing, and controls services specialist Therma Holdings.

An IB industry source said, “Blackstone’s goal is to expand Junohair overseas, so additional acquisitions of beauty brands that are popular abroad are being considered,” adding, “In that case, not only the B2C (business-to-consumer) segment but also the B2B (business-to-business) segment can be strengthened, so an active bolt-on strategy is anticipated.”