Woongjin Group, which faced the risk of dissolution due to frequent large-scale mergers and acquisitions (M&A), is making a comeback in the M&A world after six years.
The S. Korean group, which is aiming to acquire Fried Life, the leading funeral services company in Korea, has expressed its intention to secure approximately 1 trillion won ($697.3 million) for the deal through company bonds and acquisition financing without relying on a rights offering.
Naturally, the market remains skeptical. Both company bonds and acquisition financing would increase the debt burden, raising doubts about Woongjin’s ability to secure such a large sum given its current credit rating. The memory of acquiring Coway, a leading home appliance company, six years ago, only to sell it three months later, still looms large.
According to investment banking (IB) sources, Woongjin is pushing to acquire 100% of Preedlife’s shares. Preedlife is S. Korea’s funeral services company, specializing in funeral arrangements and related services. This acquisition includes shares held by the private equity firm (PEF) VIG Partners, the seller, as well as any shares that may be included if the tag-along right is exercised. Market estimates suggest the total acquisition price could range from $627.5 million to $697.3 million.
Woongjin is confident about closing the deal quickly, with due diligence on Preedlife currently underway and expectations to finalize the transaction by May. However, the market anticipates that the binding stock purchase agreement (SPA) will likely be signed in the second half of this year due to concerns over Woongjin’s ability to raise the necessary funds.
This caution comes from Woongjin’s troubled history with M&A. The group, which expanded aggressively through acquisitions starting in the late 1980s, encountered a financial crisis after reckless growth. It faced major setbacks after acquiring Seoul Banking, Kukdong Engineering & Construction, and Woongjin Polysilicon, ultimately being forced to sell its key affiliate, Coway, in 2012.
Despite these challenges, Woongjin was determined to regain Coway. In 2019, the group tried to reacquire Coway, but within three months, liquidity issues emerged, and the group had to sell it again. Had Netmarble not stepped in as the buyer, the aftershocks could have been severe. At the time, financial investors such as Korea Investment & Securities were relieved when the sale went through.
Now, Woongjin maintains that the situation is different this time, but the market remains cold.
As of the third quarter of 2024, Woongjin’s liquid assets were worth approximately $295.2 million, with cash and cash equivalents totaling only $33 million. Given this situation, raising almost $700 billion in acquisition funds on its own seems difficult. To address shareholder concerns, Woongjin emphasized that it will not consider a rights offering for raising acquisition funds and will instead rely on company bond issuance and loans from financial institutions.
Issuing company bonds is a strategy Woongjin did not consider during its previous acquisition of Coway. In fact, Woongjin has not raised funds through the company bond market in the past decade. Although its financial situation may have improved since 2019, when its credit rating was BBB- (negative), it remains unclear how much it can raise now.
In 2012, Woongjin applied for court receivership for its holding company, Woongjin Holdings, and Keukdong Construction to rapidly restructure its debt, causing controversy and distress among bond investors.
Ultimately, it seems that, like during the Coway deal, Woongjin will have to rely heavily on borrowing to finance the acquisition. According to industry sources, Eugene Private Equity, a private equity firm, will participate as a financial investor in the deal.
An IB industry insider pointed out, “The funeral services industry is unfamiliar to foreign investors, so potential buyers are likely limited to S. Korean investors. Moreover, the scale of funding required is too large relative to Woongjin’s size. In the end, Woongjin needs to convince investors that it can effectively increase the company’s value, but its past history makes it uncertain whether the deal will succeed.”
