This article was published on Dec. 10, 2024, at 2:32 p.m. on the Chosun Biz MoneyMove (MM) website.
Due diligence has begun for the sale of SM Entertainment's (SM) subsidiary, the KOSDAQ-listed SM C&C, and Keyeast. SM noted it is selling non-core assets to secure investment funds and focus on its music business.
According to investment banking (IB) sources on the 10th, major buyers are conducting due diligence for the acquisitions of SM C&C and Keyeast. It has been confirmed that each company has two strategic investors (SI) involved. Earlier, Deloitte Anjin, the sale's leading firm, distributed investment memorandums (IM) to private equity fund (PEF) managers and strategic investors (SI) who have expressed their intent to acquire.
Analysts suggest that it would be difficult for financial investors (FI) to acquire solely due to the characteristics of the sale. SM C&C operates in advertising, content production, management, and travel, while Keyeast engages in actor management and video content production. An IB industry source said, "The potential for increasing corporate value is limited, so SIs, who can synergize with existing businesses, are likely to be interested rather than FIs."
The sales of SM C&C and Keyeast started at the same time and are led by the same lead manager but are being conducted separately. The sale targets include a 30.36% stake in SM C&C and a 33.71% stake in Keyeast. The sellers for SM C&C are SM Studios (29.23%) and DreamMaker Entertainment (1.13%), while the sellers for Keyeast are SM Studios (28.4%) and SM Entertainment Japan (5.3%). Most of the sale targets belong to SM Studios.
SM Studios, the content subsidiary of SM Entertainment, was established in 2021. SM Entertainment owns 100% of SM Studios, which thereby holds SM C&C and Keyeast as subsidiaries. In addition to these two companies, the SM Studios group includes Dear U, Mystic Story, and SM Life Design Group. SM Entertainment has Kakao as its largest shareholder.
Both companies involved in the sale are KOSDAQ-listed. As of this day, SM C&C has a market capitalization of 140 billion won, and Keyeast is around 90 billion won. Both companies are facing poor performance. For the third quarter of this year, SM C&C recorded an operating loss of 1.2 billion won, while Keyeast posted an operating profit of 150 million won.
Rumors about the sale of the two companies have emerged since early last year. This was due to SM Entertainment CEO Jang Cheol-hyuk's announcement in February of last year of the SM 3.0 strategy, which stated that the company aimed to secure 280 billion won by selling non-core assets. SM C&C is also under pressure to sell from the Korea Communications Commission. According to the law regarding the sale of broadcasting advertisements, advertising agencies cannot own shares of broadcasting advertisement selling agencies. Therefore, Kakao must sell either SBS M&C or SM C&C.