South Korean private equity firm KCGI is encountering significant difficulties in raising the necessary funds for its planned acquisition of a controlling stake in Hanyang Securities Co. The 244.9-billion-won ($183 million) deal is now at risk of collapsing, as potential investors are deterred by the high bidding price and regulatory challenges, according to sources familiar with the matter.
High Bidding Price Raises Concerns
Last month, KCGI, which is widely recognized as an activist fund, was selected as the preferred buyer for a 29.6% stake in Hanyang Securities, a smaller brokerage specializing in fixed-income trading. To secure the deal, KCGI tentatively agreed to pay 65,000 won per share—more than four times the market price, which stood at 15,690 won as of Monday’s close.
With negotiations expected to conclude this week before a binding agreement is signed, the high premium has become a sticking point for potential investors.
Efforts to Secure Funding
Kang Sung-boo, CEO of KCGI, has been actively seeking financial support from various domestic financial services firms, including Daol Investment & Securities Co., Cape Investment & Securities Co., and OK Financial Group, the parent company of OK Savings Bank. To sweeten the deal, Kang offered these firms call options on Hanyang Securities, but none have yet signed letters of commitment, casting further doubt on the deal’s finalization.
Daol Investment’s Hesitation
Kang specifically targeted Daol Investment’s Chairman Lee Byung-chul, attempting to bring him into a consortium to take control of Hanyang Securities, which ranks as South Korea’s 28th largest brokerage firm. Lee was reportedly interested, seeing Hanyang Securities as a potential “white knight” in the event of a hostile takeover bid for Daol Investment, where he holds a 24.82% stake as the largest shareholder.
However, Daol Investment recently decided against participating in the deal, citing concerns that the financial commitment required would negatively impact its bottom line.
Uncertain Participation from OK Financial Group and Cape Investment
OK Financial Group is still considering joining the consortium with an eye on expanding into the brokerage sector, according to sources. However, the group has not yet made a final decision on whether to partner with KCGI in acquiring Hanyang Securities. Meanwhile, Cape Investment, which had also been a contender for Hanyang Securities, is reportedly focusing on strengthening its financial structure rather than pursuing the acquisition.
Regulatory Scrutiny Poses Additional Hurdles
Even if KCGI secures the necessary backing, the deal faces another major challenge: regulatory approval. The firm is subject to intense scrutiny regarding its eligibility as a new controlling shareholder of Hanyang Securities. Regulatory authorities have vowed to thoroughly review the deal, especially given concerns about transparency. Critics have pointed out that the transaction was conducted without a sales manager and bypassed the due diligence process for preliminary bidders.
Additionally, industry observers note that KCGI’s offer of call options on Hanyang Securities to its financial backers could further complicate the regulatory approval process.
Potential Impact on KCGI’s Reputation
Should the Hanyang Securities deal fall through, it would likely damage KCGI’s credibility. The firm, once a prominent activist fund, recently abandoned its attempt to acquire Nextin Inc., a Kosdaq-listed semiconductor equipment maker, after failing to meet the payment deadline for the purchase.
The runner-up for the controlling stake in Hanyang Securities is domestic fashion retailer LF Group, which could potentially step in if KCGI’s deal collapses.
