KKR is investing in Korean car part makers as it believes it sees a road through the technology changes roiling the auto industry.
The New York-headquartered private equity firm said on Thursday that it is buying into two businesses owned by Korean chaebol, LS Group. They make electrical auto parts and electric vehicle battery copper foils.
In KKR’s view the automotive industry faces a bumpy ride as more and more ecologically conscious people start using electric cars and the prospect of self-driving vehicles gets closer to becoming reality. This technological transformation has put pressure on traditional auto-component manufacturers to innovate.
The complex deal involves KKR buying 47% of LS Group’s electrical auto parts unit, LS Automotive, and all of the sprawling conglomerate’s copper foil and flexible copper clad laminate business owned by one of the Korean group's offshoots, track shoes manufacturer LS Mtron.
In a statement, KKR said its investment implies a combined enterprise value, debt and equity, of the LS Automotive and the copper businesses of KRW1.05 trillion ($923.6 million).
KKR is looking to draw on its experience in the auto and manufacturing industries to help the businesses grow in markets like China and India, as well as to diversify their customer base.
It's not the first time KKR has invested in the Asian car parts market. In March KKR completed a tender offer for Japanese automotive components maker Calsonic Kansei. Nissan Motor tendered its 41% stake to KKR during the process.
Like many of its peers, LS Group is restructuring. The conglomerate had been planning on listing LS Automative in New York during the first half of this year, according to equity analysts.
Established in 1973, LS Automotive exports switches, interior lamps and human machine interface systems, power seat modules, electrical control units, sensors and relays. It already supplies Hyundai Kia Motors, GM, Ssangyong, Fiat Chrysler, Audi, Daimler, Nissan, and Mitsubishi.
In 2016 LS Automotive recorded revenue and operating profits of KRW 911 billion and KRW 62.8 billion, respectively.
Copper foil battery applications are among the fastest-growing segments of the auto industry, as a result of increased demand for lithium-ion batteries for electric vehicle use and rising demand for environmentally friendly transportation.
The copper businesses KKR is buying supplies LG Chemical and major battery manufacturers in Japan and China.
KKR’s Hyoung Seok Lim and Chung Ho Park were point people on the deal.
KKR’s financial adviser was JP Morgan; legal advice came from Kim & Chang and Simpson Thacher; while the accountants on the deal were Deloitte.
KKR has invested $800 million in Korea since 2009. KKR will make its proposed investment from its $9.3 billion Asian Fund III.