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| A branch of Missha in Seoul / Courtesy of Able C&C |
Private equity firm fails to reap profits
By Anna J. Park
Able C&C, which owns Korea's representative road-shop cosmetics brand Missha, is finally up for sale in the M&A market, five years after IMM Private Equity (IMM PE) purchased a controlling stake in the firm for about 400 billion won ($287 million). While Credit Suisse has been tapped to manage the sales process, the selling price is estimated to be less than half of what IMM PE paid to acquire it, given that the market cap of Able C&C stands at around 171.3 billion won, as of Friday.
After acquiring the stake in 2017, IMM PE has been struggling to increase the company's corporate value and profitability. Yet it couldn't overcome the shock from COVID-19 as well as changing market trends such as a growing preference for shopping for cosmetics online and the popularity of multi-brand cosmetics shops.
The private equity firm injected nearly 400 billion won into the company, only to witness losses in its investment over five years. The private equity firm first acquired a 25.54 percent stake in the cosmetics company for 188.2 billion won in 2017, and later purchased more shares to increase its stake to 59.2 percent.
Normally, private equity funds aim to complete an exit from their buyout of a firm within five years by reselling the acquired management rights. But Able C&C posted annual losses in 2018, followed by continual annual losses during the past two years due to the pandemic shock, complicating the private equity firm's original plan to sell its stake at a higher price than it originally paid.
The firm's revenue also plunged to 262.9 billion won last year, a decline of more than 30 percent from the time of acquisition in 2017 when its revenue stood at 373.2 billion won. The number of the company's shops also decreased to 327 from about 700 five years ago.
IMM tried to salvage the company by appointing Eugene Kim, the private equity firm's star player who has a successful track record of turning a company from losses to profits, as Able C&C CEO in June last year. Under her leadership of expanding overseas, the cosmetics firm turned around to post an operating profit of 3 billion won during the first half of this year, despite decreased revenues. This year's earnings before interest, taxes, depreciation and amortization (EBITDA) is expected to recover to about 20 billion won.
With the success in turning to profits, IMM PE aims to meet potential buyers who could maintain the cosmetics firm's fundamentals and values.
"The corporate value of Able C&C decreased due to several reasons following the acquisition. But the company succeeded at turning a profit this year, and IMM aims to find a buyer who acknowledges its reasonable price," IMM CEO Kim Young-ho told a local media outlet on Friday.
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