The digital security market is rapidly growing in South Korea, one of the world’s fastest-aging countries and amid its soaring labor costs.
Security systems are emerging as a key to sustainable growth for small- and mid-sized businesses, says Suh Sang-jun, managing director at the Seoul office of EQT Partners AB, one of the top global private equity firms.
The Swedish PE firm, managing €113 billion ($121.3 billion) in assets under the umbrella of Europe’s powerful Wallenberg family, announced its acquisition of security services provider SK Shieldus Co. for more than 2 trillion won ($1.5 billion) last month.
The deal includes 1.8 trillion won for a 28.82% stake from SK Square, an investment arm of SK Inc., and 36.87% from a Macquarie-led consortium. EQT invested additional 200 billion won to buy new shares in the security services firm.
The deal, marking EQT’s first acquisition of a Korean company, will be completed as early as the first half of this year.
“Less than 10% of the 300,000 small and medium-sized buildings in Korea are using physical security services,” Suh said. “As labor-intensive systems are not sustainable, SK Shieldus is highly likely to replace the traditional systems," he added.
SK Shieldus, alongside Samsung Group affiliate S-1 Corp., is leading the security service market in Korea.
“Despite the two players’ domination, the local security market shows more than 6% growth annually. It is a very attractive destination for infrastructure investors with high entry barriers and steady growth even in the downturn,” Suh said.
“SK Shieldus is the only firm that provides total security solutions, from detecting incidents through sensors and dispatching guards to offering insurance services. About 1% of the 3.5 million small- and mid-sized enterprises in Korea are adopting autonomous security systems – we believe that SK Shieldus’ value will significantly rise if the rate increases to 10%,” he added.
FOCUS ON INVESTED FIRMS' GROWTH
While many global PE firms prioritize high returns through exits, EQT executes more reinvestments and additional M&As to boost the growth of acquired firms, Suh said.
For the invested companies' better corporate governance, EQT requires them to have independent boards.
“There are not many financiers on the boards of the firms we have bought. Only one investment manager from EQT sits on each board, while the other members are industry experts with decades of experience. We value the culture that outside directors collaborate to spur the companies’ growth,” he added.
The Swedish PE firm also implements a full potential plan (FPP) following acquisitions, which builds five-year growth strategies of the invested firms and identifies additional M&A opportunities. EQT initiates discussions on exits when the FPP reaches its target level.
Following the SK Shieldus deal, EQT is slated to transfer about 1,000 cars owned by the security service firm to electric or hydrogen vehicles.
"We believe that SK Shieldus will play an important role in boosting environmental, social and governance (ESG) management, as well as helping smaller businesses reduce late-night work hours and put human resources more efficiently,” Suh said.
Suh joined EQT as managing director in September 2021 in the infrastructure team. Before joining the Seoul office, he participated in writing the FPP following EQT's acquisition of Metlifecare, one of the largest operators of retirement villages in New Zealand. He worked for EQT's German and Australian offices for a year and seven months.
Before joining the Swedish PE firm, he was a managing director at Anchor Equity Partners, focused on private equity buyout opportunities in Asia. Suh also worked at Unitas Capital, formerly known as JP Morgan Partners Asia, and JP Morgan’s investment banking division. He earned bachelor's degrees in both computer science and economics at Standford University.
