According to investment banking (IB) industry sources on the 28th, major global private equity firms such as Blackstone and Warburg Pincus submitted bids in the preliminary auction conducted by J.P. Morgan, the lead advisor for the S&I Corporation sale. The selling side plans to select qualified candidates from among the preliminary bidders and grant them the opportunity to conduct due diligence. Subsequently, based on the results of the due diligence, a formal bidding process will be conducted to select the final preferred bidder.
Market estimates for the sale price of S&I Corporation have reached as high as 900 billion won. This represents a multiple of 15 times last year’s earnings before interest, taxes, depreciation, and amortization (EBITDA) of 60 billion won. While the typical multiple applied to building management companies is around 8 to 10 times, this price is estimated to include a premium reflecting the status of the company as an infrastructure and platform asset. Global private equity firms tend to assign high multiples by interpreting captive-based fixed revenue as long-term infrastructure income.
If the deal closes as expected at around 900 billion won, Macquarie Asset Management is expected to hit a jackpot amounting to roughly double its initial investment. In February 2022, Macquarie acquired a 60% stake in S&I Expert, a building management company affiliated with the LG Group, for 360 billion won and renamed it to its current name. The stake being sold this time is also the 60% controlling interest held by Macquarie, and the value of that stake is estimated to be between 500 billion and 600 billion won. This amounts to a 1.5-fold return on investment just four years after the acquisition.
Stable Earnings Outlook Thanks to the Captive Effect
Behind this success lies rapid earnings growth. Revenue, which stood at 201 billion won in 2021, grew more than fourfold to 880.9 billion won last year, while operating profit nearly quintupled from 10.5 billion won to 49.6 billion won over the same period.
The fact that the LG Group retains a minority stake is also viewed positively. Even after Macquarie became the largest shareholder, S&I Corporation continues to exclusively manage major buildings associated with the LG and GS Groups—including LG Twin Towers, GS Tower, and the LG Seoul Station Building—and this “captive effect” is cited as a key strength.
Korea Credit Rating Agency (KCRA) stated, “Although the largest shareholder changed to a private equity fund in 2022, the company’s role in exclusively managing the operations and maintenance of key facilities—including LG Group’s real estate—makes it difficult to replace,” adding, “Considering the strong business competitiveness of major group affiliates such as LG Electronics, LG Chem, and LG Uplus, the company is expected to maintain a stable business foundation going forward.” Korea Credit Rating Agency assigned a credit rating of ‘A-(Stable).’
An industry insider explained, “Since the company’s business is based on long-term contracts with LG Group affiliates, its strength lies in predictable and stable annual cash flows that are unaffected by economic fluctuations.”
