In the domestic market, private equity funds have become firmly entrenched as symbols of corporate restructuring and job insecurity. Although public sentiment has turned cold following a series of negative incidents, there are actually many cases where these funds have saved and grown companies.

Edaily has taken a close look at cases where private equity funds invested in growth rather than workforce reductions, thereby boosting corporate value. Through examples of companies that faced concerns and misunderstandings simply because they were acquired by private equity funds but successfully turned themselves around, we examined how the recruitment of professional managers, global expansion, and job creation led to improved performance and growth.

Through this, we aim to highlight that investment approaches and management strategies determine a company’s success or failure, and to underscore the need to reconsider the prejudices surrounding private equity funds. [Editor’s Note]

[Edaily Marketin Reporter Song Seung-Hyeon ] What is the first thing private equity (PE) firms do when they acquire a company? People often assume that they first cut costs by reducing headcount and selling non-core assets, and then resell the company. However, the acquisition of OB Beer by the KKR-Affinity Equity Partners consortium—cited as a prime example of a successful value-enhancement deal by a domestic PE firm—took the opposite approach. Instead of cutting costs, they overhauled business practices and invested in factory facilities; as a result, the company’s value tripled in just four and a half years.

The Cost-Conscious No. 2… Market Share Slipped to 44%

In 2009, the KKR-Affinity consortium acquired 100% of OB Beer from AB InBev for approximately $1.8 billion (about 2.3 trillion won). At the time, it was the largest cross-border merger and acquisition (M&A) ever completed in South Korea. The transaction was structured as a leveraged buyout (LBO) combining $750 million in equity, a $300 million seller loan, and $750 million in bank debt, resulting in a leverage ratio of approximately 58%. This was lower than the pre-financial crisis average for LBOs (75%).

OB Beer is a company that, along with HiteJinro, has long divided the domestic beer market between them. The market remained in an oligopoly for a long time due to a structure where manufacturing, distribution, and sales were subject to a licensing system, effectively blocking new entrants. OB Beer held the top spot with a market share in the 70% range until the early 1990s, but it was shaken in 1991 when it became embroiled in a boycott of all Doosan products following a phenol spill into the Nakdong River by its affiliate, Doosan Electronics. Hite entered the market in 1993, and the rankings were reversed in 1996. Subsequently, amid the foreign exchange crisis, Doosan sold a 50% stake to Interbrew in 1997 and transferred the remaining shares in 2006, completely exiting the beer business. AB InBev’s decision to divest OB Beer in 2009 was also driven by a liquidity crunch caused by the financial crisis, which followed its massive investment in the acquisition of Anheuser-Busch.

At the time OB Beer was sold to a private equity firm, its problem was market share, not profitability. Under the InBev regime, the company maintained a conservative strategy of avoiding unnecessary competition and managing costs. While its operating profit was better than HiteJinro’s, its market share had fallen to 44% by 2009, leaving it in second place for the 13th consecutive year. In the field, it had become standard practice to force distributors to take on large volumes of inventory at the end of each month. As shipped beer piled up in warehouses, it took up to six months to reach consumers; given that beer, unlike soju, changes in taste over time, this directly led to quality issues.

From a

“push” sales model to a “sell-as-you-go” model

The first thing the private equity firm addressed was this “push” strategy. They stopped the mandatory end-of-month shipments and switched to a system where supply was aligned with wholesalers’ actual demand. In January 2010, they brought in Vice President Jang In-soo, a former Jinro executive, as Head of Sales—later promoting him to President—and also recruited key sales personnel from Jinro. On the other hand, they retained the existing management team, including President Lee Ho-rim, as much as possible. President Jang eliminated the use of English acronyms that had become widespread in the sales organization and encouraged regional wholesalers and field staff to meet regularly to rebuild their relationships.

Money was also invested in production and products. Over the four years following the acquisition, the company invested more than 200 billion won in equipment to replace aging facilities at its three plants in Icheon, Changwon, and Gwangju, and to increase the level of automation. In March 2011, the company launched OB Golden Lager, a 100% malt beer, and targeted younger consumers with derivative products such as Cass Fresh, Cass Light, and Cass Lemon.

As a result, revenue—which stood at 816.1 billion won in 2009—rose to 1.4848 trillion won in 2013, an average annual increase of 16.1 percent, while operating profit grew from 196.3 billion won to 472.7 billion won, an average annual increase of 24.6 percent. The operating profit margin rose from 24.1 percent to 31.8 percent over the same period. Compared to the 16% average over the five years prior to the acquisition (2004–2008), the average during the operational period (2009–2013) was 25%. Market share rose from 44% in 2009 to 52% in 2011, regaining the top spot, and expanded to 61% by March 2013.

The contract structure made this approach possible. The acquisition agreement included a buyback call option allowing AB InBev to repurchase the company within five years of the transaction’s closing at an enterprise value (EV) to earnings before interest, taxes, depreciation, and amortization (EBITDA) multiple of 11, as previously agreed upon. Given that a strategic investor (SI) was effectively a foregone conclusion for the private equity fund’s exit strategy, a strategy of cutting costs to boost short-term profits could actually have dampened the buyer’s willingness to acquire the company. In effect, the exit path compelled operational improvements.

In their paper “Corporate Value Creation by Private Equity Funds: Focusing on the OB Beer M&A Case,” published in Volume 39, Issue 4 of the Journal of the Korean Academy of Management, Associate Professor Lim Mi-hee of Myongji University’s College of Business and others characterized this transaction as a “growth-oriented leveraged buyout (LBO)” rather than a cost-cutting LBO. They assessed it as a model in which “operations-centered value enhancement”—involving direct intervention in operational areas such as sales, distribution, and products to transform the company’s fundamentals, rather than financial restructuring or workforce reductions—was successfully implemented.