Woongjin Is Buying Preed Life (Largest Death Care Service Company in Korea) Using LBO

• Woongjin Co Ltd (016880 KS) (through its subsidiary WJ Life Holdings) is buying the controlling interest in Preed Life (largest funeral service company in Korea) using LBO (leveraged buyout).

• Preed Life is the number one player in the funeral service provider industry in Korea. It has excellent financials and it has done an excellent job of consolidating this industry.

• All in all, we like this acquisition of Preed Life by Woongjin using LBO. Preed Life has stable cash flow generation and strong growth in sales and profits.

Details of Woongjin Group's Acquisition of Preed Life

On 29 April, Woongjin Co Ltd (016880 KS) announced that its subsidiary WJ Life Holdings (100% owned by Woongjin Co), signed a stock purchase agreement (SPA) with private equity fund management company VIG Partners to acquire a 99.77% stake in Preed Life which is the largest company in Korea's mutual aid industry (funeral services) with an advanced payment of 2.56 trillion won at the end of 2024.

The full acquisition price is 883 billion won,which includes a down payment of 88.3 billion won and the remainder of the balance is required to be paid by the end of May 2025. Woongjin secured the exclusive right of first negotiation on February 17 and conducted a thorough due diligence for about 5 weeks. After that, it reached a final agreement with VIG Partners on the acquisition price and major terms.

Funding for this acquisition - Although Woongjin has not revealed the full details of how it will fund this acquisition, it has been reported that Woongjin Group plans to secure about 500 billion won of this amount through acquisition financing (DB Securities and Woori Bank will be involved) and the remaining amount through mezzanine issuances such as perpetual bonds, convertible bonds (CB), and redeemable convertible preferred stocks (RCPS).

Valuations for Preed Life Acquisition

Assuming acquisition price of 883 billion won (for equity), this would suggest the following valuation multiples:

• P/E - 11.6x (2024)

• P/S - 3.2x (2024)

• P/B - 3.5x (2024)

• EV/EBITDA - 3.3x (2024) [This figure is debateable depending upon how to account for its balance sheet items. In this instance, we assumed EV of 361 billion won and EBITDA of 110 billion won (2024) to derive EV/EBITDA of 3.3x]. There could be some disagreements among investors in terms of how to treat the 2.6 trillion won in advanced payments.

Our Call on Woongjin Co - All in all, we like this acquisition of Preed Life by Woongjin using LBO. Preed Life is the number one player in the mutual aid funeral service provider industry in Korea. It has excellent financials and the company has done an excellent job of consolidating this fragmented industry. We like Preed Life's stable cash flow generation and strong growth in sales and profits in the past several years.

The big risks include the company's 2.6 trillion won in advanced payments. If there is a severe downturn in this industry, it could be difficult for some of its customer to maintain their payment. However, given the company's number one position in this industry, if the industry undergoes a downturn, the company is likely to remain one of the surviving companies that could increase its market share even further. Acquisition valuations are attractive.

Given that Woongjin Co Ltd (016880 KS) has a market cap of only 113 billion won, there will naturally be concerns about whether Woongjin is acquiring a company (Preed Life) that is too big for its size. Despite this risk, we believe that Woongjin has selected a winner and that it is not overpaying for this acquisition.