KKR wraps up $739 mn purchase of Korean waste management firms

KKR & Co. of the US has finalized the 875 billion won ($739 million) purchase of two South Korean waste treatment companies after completing its final payment on August 19, according to investment banking sources.

Under the deal, KKR acquired 100% of ESG Co. Ltd., a medical waste treatment firm, and 77.8% of ESG Cheongwon Co. Ltd., an industrial waste management company, from Hong Kong-based private equity firm Anchor Equity Partners.

ESG Co. runs seven subsidiaries across the country that make up the ESG Group, including ESG Cheongwon. ESG Co. holds the remaining 22.2% stake in ESG Cheongwon based in Cheongwon Province.

The acquisition was KKR’s first buyout deal in Korea in two years, following the launch of the $1.3 billion KKR Global Impact Fund in February. The fund focuses on sectors providing commercial solutions to environmental or social problems, including waste management.

In June, the US investment firm was chosen as the preferred buyer for the ESG Group, in competition with New York-based Stonepeak Infrastructure Partners. KKR had under-the-table negotiations with Anchor Equity and outbid Stonepeak, sources said. Citigroup Global Market Securities managed the sale.

The ESG Group is one of three Korean waste management groups up for sale this year. All of them were owned by foreign financial investors, including Macquarie and Affirma Capital.

 

KKR participated in the preliminary auctions for all the three Korean waste treatment groups, but dropped out of the race for Korea Environment Technology Co. Ltd. (Koentec) and Saehan Environment Co. Ltd. – sold by Macquarie Korea Opportunities Management Ltd.

In the binding bid for South Korea’s largest waste treatment company EMC Holdings Co. Ltd. sold by Affirma Capital, KKR competed with Goldman Sachs Merchant Banking Division and Singapore’s Keppel Infrastructure Holdings. But they lost to strategic bidder SK Engineering & Construction Co. Ltd.

EXPANDING MEDICAL WASTE TREATMENT MARKET

Compared to EMC Holdings and Koentec, which focus on wastewater and industrial waste treatment, respectively, the ESG Group mainly handles medical waste. ESG owns four of South Korea’s 13 medical disposal facilities.

The medical waste treatment market is expected to grow in line with the expansion of the senior-care market. The rising per-ton treatment price of medical waste will also shore up balance sheets, combined with high entry barriers to the sector due to environment-related regulations.

From the divestment, Anchor Equity achieved a return of almost five times. Including ESG Cheongwon, it has spent a combined 180 billion won buying seven Korean waste management companies since 2016. They were combined under the name of ESG Group.

Last year, it sold Geo-Young Corp., a medical goods wholesaler, to Blackstone for 1.1 trillion won, nearly three times its investment, and Health Balance Co. Ltd., a dietary supplement company, to TPG for around $250 million.

Anchor Equity recently put Daeheung Farm Co. Ltd., the world’s biggest mushroom farm, back on the market, which is estimated to bring in about 200 billion won. It is also expected to revisit the sale of TMON Inc., a Korean e-commerce platform. Together Anchor Equity and KKR acquired a majority stake in the online shopping platform in 2015, but their talks with retail giant Lotte Group to divest of the Korean platform faltered last year.

Write to Chaeyeon Kim at why29@hankyung.com