The sale of the South Korean e-commerce platform 11th Street, led by financial investors, is encountering significant hurdles. The distribution of the information memorandum to potential buyers, initially scheduled for this month, has been recently postponed. Despite engaging with a wide range of prospective buyers right after the lead seller was appointed earlier this year, from domestic retail giants to international private equity (PEF) managers, the process has since stalled.
Nile Holdings, a financial investor and the second-largest shareholder of 11th Street, recently postponed the sale of the e-commerce platform. As a result, the information memorandum distribution planned by the sale organizers, Citigroup Global Markets and Samjung KPMG, was simultaneously halted.
Citigroup Global Markets and Samjung KPMG had intended to distribute the information memorandum this month and had already conducted demand surveys among potential buyers, including PEF managers. They also issued a teaser letter outlining the sale in February, targeting domestic retail giants such as Shinsegae, CJ, and Lotte.
A lack of active buyers and price discrepancies between the seller and potential buyers has led to Nile Holding’s decision to postpone the sale. Nile Holdings is reportedly seeking between 500 billion won and 600 billion won for a 100% stake in 11th Street, with the lower end considered the minimum amount needed to recover its investment. Nile Holdings is a consortium formed by H&Q Korea, Aeneas Private Equity, the National Pension Service, and the Korean Federation of Community Credit Cooperatives. The consortium invested 500 billion won in 11th Street in 2018 at a valuation of 2.75 trillion won.
Nile Holdings initially planned to recover its investment by listing 11th Street, but the IPO was canceled. Amid intensifying competition in the e-commerce market, led by e-commerce giant Coupang, 11th Street recorded an operating loss of 125.8 billion won last year. Furthermore, 11th Street’s parent company, SK Square, abandoned its call option, leaving a sale as the only viable recovery method.
Nile Holdings has reportedly decided to wait for 11th Street’s profitability to improve. The consortium believes that once the e-commerce returns to profitability, the 500 billion won valuation will be justified. Following workforce restructuring at the end of last year and earlier this year, the open market segment of 11th Street generated monthly operating profits last year.
11th Street is also ramping up business restructuring efforts, including reducing the direct purchase business. Unlike open marketplaces, where revenue is generated based on commissions on product sales, in the case of direct purchases, the price of the product leads to revenue. But direct purchasing also requires extensive investment, especially in building a logistics network. Coupang’s core business, Rocket Delivery, is direct purchasing.
As part of its restructuring efforts, 11th Street has been closing down its logistics centers, such as the one in Paju.
“11th Street’s financial investors seem to believe that the 500 billion won valuation is justified given the recent improvements in profitability in the open market business, " said an investment banking insider. “However, the key issue will be proving that the company can generate profits before the cash reserves are completely depleted, which will determine whether the sale can take place in time.”
