Buying Korea

One sultry evening in July 2013, Michael Kim, Seoul-based founder of private-equity firm MBK Partners Ltd., was walking into his house for dinner when he received a text message on his mobile phone.

“Are you available for a call now?” read the message from Frank Koster, then ING Groep NV’s chief executive officer of insurance in the Asia-Pacific region.

Kim, known for his ability to write a big check as chairman of South Korea’s largest buyout firm, sensed it could be the news he’d been eagerly anticipating for three weeks. During that period, ING, which was seeking to sell its Korean unit, ING Life Korea, had been locked in exclusive talks with the highest bidder, a local rival of MBK.

But Kim knew that many local PE firms, struggling to attract big investors, had limited capital. Foreign firms with deep pockets, meanwhile, were barred from buying a financial institution under Korean law. That left MBK, Kim figured, as the only realistic suitor for Korea’s No. 5 life insurer.

He paused for a moment. Then instead of jumping and saying yes, he replied to Koster: “At a dinner. Call tomorrow a.m.?”

The ING executive wrote back almost instantly: “Can you step out for a minute or 2?”

Kim asked Koster to call in five minutes or so. Koster did, wanting to know one last time whether Kim would consider raising his offer from the original $1.7 billion, Kim recalls.

“No,” Kim said.

‘Trustworthy Counterparty’
Kim, a 51-year-old Korean-American who oozes the languid confidence of a man fully aware of his own worth, ended up getting the deal at his original bidding price after a month of negotiations.

Koster, now CEO of AXA Belgium SA, says he found Kim to be a “tough, reliable and trustworthy counterparty who knows what he wants.”

The ING deal turned out to be one of his smartest investments. It showed how his negotiating skills and his dominant position—as head of a Korea-registered firm backed by sovereign wealth and pension funds—propelled MBK’s remarkable rise during the past decade from a start-up to the largest independent PE firm in North Asia, with more than $8 billion under management.

Today, MBK—which stands for Michael ByungJu Kim, his full name—is the only major buyout fund in the world that exclusively focuses on Greater China, South Korea and Japan. Kim has presided over a surge of PE in Korea, which tops Bloomberg Markets’ fourth annual ranking of the most-promising emerging economies.

Growth in gross domestic product, aided by central bank interest-rate cuts and a 46 trillion won ($42 billion) stimulus package, is forecast by the Ministry of Strategy and Finance to hit 3.8% in 2015, up from an estimated 3.4% in 2014.

MBK has led the PE pack since the Korean regulator loosened requirements in December 2004, effectively eliminating capital gains taxes for such firms.

Since then, the number of private-equity firms registered with the Financial Supervisory Service has soared to 271 from 15. They had a record 49 trillion won of capital under management at the end of 2014, up from 4.7 trillion won at the end of 2005.

Under Pressure
After an uninterrupted winning streak, Kim has hit a snag. After seven years of investment, MBK is under pressure to sell C&M Co., a Seoul-based cable TV service provider that the fund and its partner acquired for $2.35 billion in 2008 and subsequently expanded by buying another firm.

Adding to Kim’s troubles, more than 100 former C&M subcontract workers were on strike for five months until December 31, when their labor union accepted C&M’s proposal to have them re-employed by other subcontractors.

Two of the strikers garnered Kim unwanted publicity, dramatizing their grievances by stationing themselves atop a 20- meter-high (66-foot-high) billboard for seven weeks outside the Seoul Financial Center, in which MBK’s office is located.

“All eyes are on MBK’s exit of C&M now,” says Lee Jae Woo, chairman of the Korea Private Equity Association and a co- founder of Vogo Investment, a Seoul-based PE firm. “But people need to look at the fund’s overall performance holistically, not one single investment.”