This article was published on Feb. 18, 2025, at 3:42 p.m. on the ChosunBiz MoneyMove site.
UAMCO canceled the sale procedure for plant manufacturer Yonghwa Engineering. This comes as construction companies enter corporate rehabilitation procedures as the construction market stagnates. UAMCO plans to resume the sale process when the real estate market recovers and a rebound in the construction industry begins.
According to the investment banking (IB) industry on the 18th, UAMCO is halting the sale procedures for Yonghwa Engineering. Earlier, UAMCO had selected Samil as the sales supervisor and began the pre-marketing process. The transaction object is the total common stock (100% equity) held by UAMCO through the special purpose corporation (SPC) 'Yonghwa Rebound' and the fund 'UAMCO Corporate Rebound 5th Corporate Financial Stability Private Investment.'
Previously, UAMCO acquired Yonghwa Engineering from domestic private equity fund (PEF) operator MBK Partners. In early 2017, they secured management rights by investing 35 billion won through a third-party allocation of new shares. They also acquired company bonds worth 15 billion won newly issued by Yonghwa Engineering. The funds injected at that time were used to repay Yonghwa Engineering's existing debt. MBK Partners handed over management rights to UAMCO for the normalization of the company rather than for a return on investment.
Founded in April 1988, Yonghwa Engineering engages in the production and installation of steel structures and metal construction materials. It is headquartered in Seoul and has factories in Dangjin, South Chungcheong Province, and Goesan, North Chungcheong Province. It also has a local subsidiary in China and is conducting overseas business. The company participates as a key partner in various ultra-high-rise buildings and intelligent mixed-use building projects. Representative projects include Lotte World Tower in Jamsil, Lotte Castle in Mapo, the International Financial Center in Yeouido, and D-Cube City in Sindorim.
Yonghwa Engineering is a medium-sized company that has maintained the top rank in construction capability evaluation for domestic steel structure construction for several years. MBK Partners, which highly evaluated the company as it steadily generated cash flow, acquired Yonghwa Engineering for 100 billion won in 2009. In 2011, the company achieved solid results, with sales and earnings before interest, taxes, depreciation, and amortization (EBITDA) reaching 257.3 billion won and 21.3 billion won, respectively.
However, due to aggressive overseas bidding strategies, declining profitability from overseas plants of primary contractors, and instability in the domestic housing market, the company faced a crisis as the construction industry stagnated. Subsequently, as management difficulties worsened, Yonghwa Engineering was put back on the market for mergers and acquisitions (M&A). At the time, it recorded sales of 83.8 billion won, but the EBITDA showed a loss of 11.7 billion won.
After UAMCO became the new largest shareholder, it completed a turnaround into profitability through restructuring the business. They particularly reduced operating costs and accelerated cash acquisition by selling existing plants in Yeoju, Dangjin, and Dubai. It successfully raised its credit rating from 'D' to 'BBB-.' As of 2023, sales and EBITDA were recorded at 76.9 billion won and 4 billion won, respectively.
However, since last year, signs of stagnation in the construction market have become more pronounced, making the exit plan, which was to occur after seven years, uncertain. In fact, the number of comprehensive construction companies that went out of business last year was 641, marking the highest number since the Korea Construction Industry Research Institute began its investigation in 2005. Earlier this year, mid-sized construction companies like Shindong-A Construction, ranked within the top 100 in construction capability evaluation, and Daeeo Construction, the second-largest in Gyeongnam, applied for corporate rehabilitation procedures, continuing on a declining path.
An official from the IB industry noted, "In a situation where construction companies are continuously closing down and the construction market is deteriorating, the sellers judged that it would be difficult to receive an appropriate price for Yonghwa Engineering," and added, "The management rights sale process is planned to proceed slowly while monitoring the construction industry's trends."
Meanwhile, UAMCO, along with Yonghwa Engineering, has commenced the sale of the engineering firm Plantech (formerly POSCO Plantech), which specializes in the steel and logistics plant sector, and has selected EY Han Young as the sales supervisor, currently progressing with pre-marketing procedures.