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Global private equity fund (PEF) manager EQT Partners has been mulling its SK shieldus exit strategy. The plan, recently floated in the market, to carve out and sell the cybersecurity (information security) unit has effectively been shelved, and analysts say valuation burdens are behind the decision.
If the cybersecurity business, which was the key rationale supporting the overall corporate value when SK shieldus was acquired for about 5 trillion won, is split off, the price burden of the remaining physical security business would stand out as is.
According to the investment banking (IB) industry on the 7th, EQT Partners has decided not to pursue a carve-out sale of SK shieldus's cybersecurity division. Tax issues that could arise in the partitioning process are a burden, but fundamentally, the decision to forgo a carve-out sale is said to have been influenced by the difficulty of explaining the value of the business that would remain after separation.
EQT acquired a 68% controlling equity stake in SK shieldus in 2023. At the time, SK shieldus was valued at an enterprise value (EV) of about 5 trillion won by adding total equity value and 2 trillion won in net debt.
At the time, the market criticized SK shieldus's price tag as excessively rich. Its 2022 earnings before interest, taxes, depreciation and amortization (EBITDA) were only 415.2 billion won, and applying a multiple of 12 to that produces an EV of 5 trillion won. While that is lower than the EV/EBITDA (about 16 times) SK shieldus presented when it pursued an initial public offering (IPO), it is far higher than S-1's EV/EBITDA (5–6 times) as a comparable.
S-1 is even the No. 1 company in the industry, and many argued that if anyone deserves a premium, it should be S-1. In response, SK shieldus countered that the company operates not only traditional physical security but also a cybersecurity business.
Cybersecurity earns higher valuations than physical security in the global market. For profitable unlisted companies, EV/EBITDA approaches about 9–13 times. Among listed companies, many are high-growth software firms, pushing EBITDA multiples to the high teens to several dozen times. When valuing cybersecurity corporations, the enterprise value-to-revenue ratio (EV/Revenue) is also used, and the sale price of Australia's CyberCX, which Accenture recently acquired, was reportedly about 2.6 times annual revenue.
This logic underpinned EQT's acceptance of an approximately 5 trillion won valuation when it acquired SK shieldus. The fact that it is not a simple physical security firm but a security platform company with cybersecurity capabilities served as justification for the high acquisition price.
An IB industry source said, "The cybersecurity business played a significant role in explaining much of the valuation premium, which in turn allowed the physical security business to be recognized at a high corporate value as well."
The problem arises if the cybersecurity segment is separated and sold on its own. An IB industry source said, "If cybersecurity is sold off first, the market will inevitably scrutinize how much value EQT is effectively assigning to the remaining physical security business," adding, "Based on the current business structure and profitability alone, it would be hard to justify that price." According to the market, traditional physical security firms generally receive EV/EBITDA multiples of around 4–8 times.
Traditional physical security can generate stable cash flow, but in terms of growth potential, the industry says it is hard to be valued on par with cybersecurity. Ultimately, for EQT, carving out only cybersecurity first could instead amplify market doubts.
The market sees EQT's latest judgment as ultimately exposing the constraints of its exit strategy. With interest rate burdens persisting, industry sources say it will be even harder to find a buyer who can digest a roughly 5 trillion won transaction at once, making both a carve-out sale and a full sale difficult.