Hahn & Co. set to exit Hanon Systems, K Car

Hahn & Company's head office in Seoul / Captured from Hahn & Company website

Morgan Stanley said to handle sale of auto parts supplier

By Park Jae-hyuk

Hahn & Company began to take steps to sell its controlling stake in Hanon Systems and to list K Car on the local stock market, industry sources said Monday.

Hanon Systems is a major manufacturer of automotive equipment, while K Car is Korea's largest used-car dealership.

Both Hanon Systems and K Car have maintained dominant positions in each of their sectors, and Hahn & Co. and the underwriters of each deal are highly likely to generate solid profits if the sales are successful.

Morgan Stanley and NH Investment & Securities are cited as the lead underwriters of each deal at the moment, but a source familiar with the matter said additional investment banks may join the Hanon Systems deal as co-underwriters, considering the size of the company.

Market insiders expect the sale of the auto parts supplier to be one of the biggest buyout deals in the domestic M&A market's history.

The market cap of Hanon Systems has come close to 10 trillion won ($8.8 billion), almost double its market cap when Hahn & Co. and Hankook Tire & Technology jointly acquired a combined 69.99 percent stake for 3.8 trillion won, seven years ago. The private equity firm (PEF) owns a 50.5 percent stake after investing 2.8 trillion won.

The tiremaker, which holds a 19.49 percent stake, has the right of first refusal, a preferred right to acquire the Hanon Systems stake before Hahn & Co. sells it to anyone else. However, this right expires in June, so the PEF will be able to contact diverse potential buyers.

“The point is which buyer can afford to pay trillions of won,” the industry source said, adding that negotiations for the deal may take several years.

In addition to the incumbent major shareholder, Hankook Tire, the potential buyers include Halla Group, which established Hanon Systems' predecessor Halla Climate Control, and other PEFs that have trillions of won in cash. Securities analysts mentioned global carmakers, battery makers and big companies in China and India as candidates, but some said a Chinese company's acquisition may cause a backlash from Hyundai Motor Group, the largest buyer of Hanon Systems' products.

“Hanon Systems can be attractive to Volkswagen and General Motors, both of which lack superior thermal management system companies in their countries, and Korea's LG and SK groups as they operate rechargeable battery subsidiaries,” Samsung Securities analyst Lim Eun-young said.

Hanon Systems factory in Pyeongtaek, Gyeonggi Province / Korea Times photo by Shim Hyun-chul

The initial public offering (IPO) of K Car could also be “sizable” by attracting around 100 billion won, considering the used car retailer has dominated the domestic market.

After Hahn & Co. acquired SK Encar from SK Group in 2018 and changed its name to K Car, the used car company expanded its presence through a merger with Joy Rent A Car that the PEF took over from CJ Group. It has also sought stable growth with its online services amid the COVID-19 pandemic.

According to industry sources, K Car seeks to go public within this year, although its market cap has yet to be ascertained. It remains to been seen whether the company will be listed on the benchmark KOSPI or junior Kosdaq market. Hahn & Co. is also tasked with convincing the militant union before listing the used car retailer.