Korean consulting firm Lookcent is known as a value-up aide quietly sought out by private equity fund (PEF) managers. It is especially regarded as surpassing global consulting firms in carve-out deals. Last year it quietly supported all the major carve-out deals, including Relson PE's acquisition of Hyundai WIA's machine tool division and Glenwood PE's acquisition of LG Chem's water treatment division. A carve-out deal means a transaction in which only some of a company's multiple businesses are carved out and transacted.
Including acquisition due diligence, Lookcent carried out a total of eight carve-out projects last year. That is up 33% from six the previous year, and according to the Korea Capital Market Institute, there were 17 domestic carve-out transactions in 2024. In Korea, one out of every three carve-out deals or more passed through Lookcent's "eyes."
Observers said Lookcent's on-site focused consulting proved effective. The firm's name carries the meaning of "looking" down to the cent (1/100 of a dollar) at the site. The carve-out team, including Deputy CEO Jeong Jae-sang, all come from science, engineering, and plant backgrounds, and Lookcent's advice is known to include even how to allocate power.
Deputy CEO Jeong said, "A carve-out transaction is, literally, delicately cutting out only a specific business division of a specific company," adding, "In some cases, you have to carve out and sell or acquire only the division that used the same plant, so compared with a buyout transaction that involves buying and selling control of a separate corporation, the level of difficulty itself is higher."
We recently met Deputy CEO Jeong at the Yeouido office to ask about the characteristics of carve-out transactions and the market outlook, after he noted that "in carve-outs, success or failure is determined by how well you prepare from signing the stock purchase agreement (SPA) to the funding." He also said, "For the time being, carve-outs will be at the center of the domestic mergers and acquisitions (M&A) market."
The following is a Q&A with Deputy CEO Jeong.
─Is the number of carve-out transactions actually increasing?
"Definitely. Even looking at the Korea Capital Market Institute's report published in May last year, 'Increase and outlook of carve-out M&A transactions,' the annual number of carve-out transactions, which stood at 11 in 2020, 10 in 2021, eight in 2022, and 10 in 2023, rose sharply to 17 in 2024. Even for us, the number of projects such as due diligence is increasing."
─What do you see as the reason for the increase in carve-out transactions?
"The crux is the rapid change in industrial structure. Broadly, there are two reasons for carve-outs. One is when a company's situation has weakened, and it seeks to bolster the competitiveness of its core business by carving out a division. The other is to separate and sell a noncore division and then pursue expansion into new businesses.
Korea, in particular, now stands in the middle of structural change in industry. Artificial intelligence (AI) is rapidly spreading across industrial worksites, and China's catch-up in manufacturing has entered the overtaking phase. "Even petrochemical companies, amid industry sluggishness, have recently put divisions on the market to secure liquidity for a pivot to high-value materials businesses."
─Some say there are no longer good targets for PEF managers.
"Carve-outs tended to carry a kind of discount due to their complexity and the costs of establishing an independent corporation, but it is true that recently, as PEF managers have flocked to target carve-out deals, that discount has virtually disappeared. However, I believe the core advantages of carve-out deals remain intact."
─What are the advantages of carve-out deals?
"Because the limitations of existing as a group affiliate—and especially as a division—are clear. Many of the divisions that come to market are so-called group noncore businesses. As a result, they often fail to sufficiently add needed personnel, and even when investment is needed, they are pushed down the priority list, suppressing growth itself.
A representative example is a petrochemical carve-out deal acquired by a large domestic PEF manager. Because it was classified as a noncore division of a large conglomerate, even with a positive market growth outlook, expansions such as polyol production facilities did not happen. After acquisition by the PEF manager, it was converted into an independent corporation, and aggressive investments such as facility expansion are underway."
─How is value-up achieved?
"As noted, we focus on resolving the limitations of existing as a division. In operational due diligence, we examine plans to improve the divisional structure, and then, in the integration (PMI) value-up stage, we sometimes lower high raw material burdens by adjusting groupwide supplier standards to fit the business domain."
─Lookcent appears frequently in major carve-out deals. What is your strength?
"Our strength as an on-site focused consulting firm seems to be especially powerful in carve-out deals. If the acquirer, a PEF manager, presents to the members of the division being acquired a vision for what investments will be made and how growth will be pursued upon conversion to an independent corporation, Lookcent develops the detailed plans.
In particular, because a divisional carve-out involves separating only the division that had been within one company, both HR and finance must be set up separately. To take a simple case, after conversion to an independent corporation, if you are not careful, unpaid payables to suppliers could halt material supply or outsourced work, so this must be ensured.
─Are you saying this is work only consultants with plant or other on-site backgrounds can do?
"It is better to say that, as a group of operations experts, we have an eye for closely monitoring how people think and work on site. Instead of saying, 'We need to diversify suppliers to reduce expenses,' we specifically propose which reachable suppliers there are and where to outsource."
─What do you pay particular attention to in consulting on carve-out deals?
"We focus on those small but important elements that allow the division to run immediately as an independent company after the final payment and closing of the transaction. We separate the transferred headcount and needs by indirect function, define the scope of new hiring, and set the scope, headcount, and duration of services by contract to prevent a responsibility gap in support functions on day one of operations.
That is easy to say but hard to execute. For example, if shipping facilities inside the plant were shared and this was not coordinated in advance, you might be unable to ship finished products. You also have to decide whether plant operating power can be used with individual transformers, how many transformers there are, and how to split the expenses for management personnel."
─In carve-out deals, I imagine closings often get delayed.
"Our first carve-out advisory was the 2018 sale of Linde's Korea division (now Air First). Since then, including due diligence and PMI value-up, we have consulted on 30 carve-out deals, and since Linde, I have thought every time that preparation is lacking. There were many cases where closing of the transaction was delayed by more than a month."
─What advance preparation would you recommend?
"It is best to categorize all core items needed to operate a company—such as organization and personnel, work procedures, IT and data, external contracts, support functions, business continuity, and decision-making structure—while, at the negotiation stage or earlier, determining what the sell-side can support and what the buy-side can establish directly."