Park Jae-hyuk is a seasoned journalist who has provided comprehensive coverage of South Korea's corporate dynamics, economic policies, industry challenges and the global positioning of Korean companies. Based on the articles he has written since joining The Korea Times in 2016, his investigative approach has helped readers understand corporate governance, economic trends and business strategies shaping South Korea’s economy.
INTERVIEW Orchestra seeks to buy Japanese parts makers
Orchestra Private Equity managing partner Jay Kim / Courtesy of Orchestra Private Equity
By Park Jae-hyuk
Kim capitalizes on government initiative to foster local manufacturers
By Park Jae-hyuk
The trade dispute between Seoul and Tokyo, which was sparked after the Korean Supreme Court ordered Japanese firms to compensate surviving South Korean victims of wartime forced labor, has distressed semiconductor and display makers here throughout the second half of 2019.
The ongoing economic conflict, however, has become an opportunity for Korea to realize the importance of the materials, parts and equipment industries.
Jay Kim, founder and the managing partner of Orchestra Private Equity, also discovered a new business opportunity from the political issue.
Kim, who served as the regional head of the Riverside Company's Asia team after working at Bain & Company and the Boston Consulting Group as a consultant, told The Korea Times that Orchestra is considering taking over a couple of Japanese parts makers.
“One of them specializes in manufacturing a key component of smartphones, which cannot be made by other companies. If we acquire those companies, they will have Korean nationality,” Kim said in a recent interview at his office in Seoul.
“In the manufacturing industry, there are many Japanese companies which are important vendors to global multinational companies.”
It has been well-known that acquiring Japanese tech firms is difficult for foreign companies.
In addition, Japan has been on the alert against leakage of technologies to Korea since the outbreak of the trade war.
Kim said Orchestra's expertise and know-how have enabled the private equity firm (PEF) to overcome such challenges.
Orchestra has several Japanese experts including Kiyo Nakano, who worked with Kim at the Riverside Company.
Kim, who married a Japanese citizen of Korean background, is also fluent in Japanese with deep knowledge and understanding of the country.
Cross-border mid-cap buyout
Based on the founder's expertise in the Japanese market, Orchestra has focused on “cross-border mid-cap buyout” in East Asia, since it established its headquarters in both Seoul and Tokyo in 2014.
Kim chose the name “Orchestra” to symbolize that every member of his firm is needed to perform “a piece of art.”
“We regard ourselves as not only the conductors, but as instruments in a play to deliver the best results to all stakeholders,” he said.
Orchestra has now grown into a PEF that launched three project funds with transaction volume ranging from 80 billion won ($68 million) to 122 billion each ― Majesty Golf, formerly known as Maruman; Vision Holdings, formerly known as Seoulvision; and Phoenixdarts, formerly known as Hong International.
The firm with $220 million in assets under management has also been dubbed “mini-MBK Partners” by some foreign investors, because of their similarity in deep understanding of the East Asian market.
Kim, however, said his company does not have any plans to conduct large deals or do M&As outside of Korea and Japan as MBK does.
“We will focus on mid-cap buyout only,” he said.
“Orchestra will focus on the East Asian market with focus on Korea and Japan. We believe our strengths are in our deep understanding of these markets, but we are delivering impactful help to the global subsidiaries of our portfolio companies which can be found in more than 47 countries through our three project funds.”
He regarded Korea and Japan as a blue ocean with many mid-caps expected to go on sale.
“Korea and Japan are both home to many small- and medium-sized enterprises (SMEs) that are considered hidden champions,” he said.
“Hidden champions are relatively small but highly successful companies in their specific industry field and many of them are currently operated by first- or second-generation owners who often belong to the baby boomer generation.”
According to the managing partner, the recent demographic and social changes in both countries caused many SMEs to reconsider business strategies and succession planning, because the baby boomers have fewer children than their parents and are facing succession and liquidity challenges.
“For these entrepreneurs, PEFs such as ours can offer an alternative and meaningful exit as we look beyond just buying an asset. Orchestra offers a real succession for the company through professional mentorship and guidance to the company backed with our knowledge,” he said.
“We place intense effort in long-term growth of our portfolio companies through strategic geographical expansion and add-on acquisitions so that all stakeholders ― seller, buyer and employees ― can mutually profit.”
Kim expects more SMEs in Korea and Japan will be on the market in the next few decades in line with retirement of baby boomer businesspeople in both countries.
“Our strategy is to grow portfolio companies through regional expansion and add-on acquisitions which can cause synergy with the existing business. We aim to grow the EBITDA by two to three times using such an approach combined with organic growth through effective management consulting,” he said.
“We are also heavily involved with the operation of portfolio companies, where change management initiatives are carried out in the early phase of the fund.”
Exit from Majesty Golf
For his blueprint to come true, Kim has gone all out to exit Majesty Golf, Orchestra's first portfolio company acquired in 2017 from Japan.
According to the managing partner, the golf clubs brand will be delisted from the Jasdaq, Japan's tech-heavy bourse, in early 2020.
If so, Orchestra, which has an 85 percent stake in Majesty, will hold an entire stake.
Through this, the PEF will be able to control everything regarding the brand, which is necessary to enhance its brand equity.
Kim was confident about a successful exit, saying potential buyers in Korea and Japan have shown keen interest in Majesty.