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.”
MBK started the process of selling C&M in mid-January, hiring Goldman Sachs Group Inc. to attract prospective buyers.
But several forces are aligned against MBK. Like other Korean cable TV operators, C&M has been facing growing competition since 2008, when the government allowed telecommunication companies to broadcast programs in real time over their broadband networks, according to Moon Jee Hyun, an analyst at KDB Daewoo Securities Co. in Seoul.
What’s more, large family-owned businesses, or chaebols—known for their appetite for expansion—may be refraining from buying major assets under the government of President Park Geun Hye, who took office in 2013 pledging to counter their vast power.
To discourage cash hoarding by corporations, the government last year announced plans to levy a 10% punitive tax on excessive cash piles.
New rivals with formidable career and family backgrounds are also closing in on Kim, as well as global PE firms that are returning to Korea, the region’s brightest spot in terms of sustained deal flow, according to Bain & Co.’s “Asia-Pacific Private Equity Report 2014.”
In 2009, KKR & Co. beat MBK and acquired Korea’s Oriental Brewery Co. for $1.8 billion, selling it back to Anheuser-Busch InBev NV for $5.8 billion in 2014.
Overseas buyout firms had reduced their investments in Korea in the mid-2000s—spooked by a mounting public backlash against billions of dollars of gains foreigners had reaped from Korean assets following the 1997-1998 Asian financial crisis.
“Unlike Japan, where private equity developed over years in an evolutionary way, private equity hit Korea like a revolution,” Kim says.
‘Korea Is Google’
Since its inception a decade ago, MBK has fully or partially sold 11 companies in its first two funds, including China Network Systems Co. in Taiwan, whose sale is pending regulatory approval. Those exits have returned an estimated $3.84 billion to investors, generating a return of 2.6 times on equity invested.
Kim says South Korea will continue to be the most dynamic market for buyouts in Asia. Part of the reason is Korea’s corporate landscape, which is dominated by large family-owned businesses. That means deals tend to be “chunky,” and the third generation of owners taking over some of the businesses can make deal flow more dynamic, Kim says.
“Korea is Google to Japan’s IBM,” he says.
MBK allocates up to 50 of its funds toward Korea and the rest in China and Japan. Kim says that as a buyout market, China is just emerging and will become the most important market one day.
For a country to be a sustainable buyout market, he says, it needs to have a population greater than 50 million and a per capita gross domestic product of more than $30,000.
Only seven countries are in that club, and Korea is one of them. The others: the U.S., the U.K., Germany, France, Italy and Japan.
South Korea’s population is 50.4 million, and its GDP per capita on a purchasing-power-parity basis is $35,485, according to 2014 data from the International Monetary Fund.
Though Korea is the world’s 13th-largest economy, it’s still considered an emerging market under MSCI Inc. criteria.
‘Mr. Chairman’
Even before he set out on his own with MBK, Kim had been one of the most prominent financiers in the country. After graduating from Harvard Business School in 1990, he rejoined Goldman Sachs and gained experience as an M&A banker. In 1995, he joined Salomon Smith Barney, which three years later became part of Citigroup Inc. There, he led the issuance of sovereign bonds worth $4 billion in 1998.
At Carlyle Group, where he served as Asia president for six years, until 2005, he led the firm’s $450 million investment in KorAm Bank, which was later sold to Citigroup for $2.7 billion.
Kim credits his success to being in the right place at the right time. He grew up in an affluent family in Seoul. It was his father, Kim Ki Yong, a businessman who later owned an insurance company, who set his son’s future course by sending him to the U.S. at the age of 12.
Michael attended private schools in Cherry Hill, N.J., before enrolling at Haverford College in Pennsylvania. He majored in English literature, leading to his lifelong love of the language.
“Don’t come back until you have mastered English,” he recalls his father saying to him.
Kim—5 foot 10, with thick black hair—prefers a 45-minute squash game over five hours on the golf course. “I have this bad habit of looking at everything in terms of opportunity cost, especially when it comes to my time,” he says.
He plays squash with Eric Hoffman, an American who’s been chief commercial officer at Aon Risk Solutions Korea since 1998.
For nine years, they’ve played a couple of times a week when not traveling. At the end of each year, the one who’s won the most games gets to keep a trophy proclaiming him “Big Fat Ahjussi.” (Ahjussi means middle-aged man in Korean.)
“Michael really wants to win,” Hoffman says.
Last year, Kim did. He won 30 games to Hoffman’s 29.
Kim can only hope he’ll be equally successful in finally selling off MBK’s cable TV companies in Taiwan and Korea.
He says he’s learned not to panic in his line of work. Recalling the days when he waited for the fateful call from Frank Koster of ING, he says:
“Every deal has twists and turns. That’s where patience and discipline are required.”
