Tyco Shortlists Private-Equity Firms in Race for Korean Unit -- Update

By Cynthia Koons and Kanga Kong 

U.S. industrial conglomerate Tyco International Ltd. has shortlisted a number of private-equity firms as potential buyers for its South Korean security unit Caps Co., in what could be a $1.4 billion acquisition, people familiar with the matter said.

Kohlberg Kravis Roberts & Co., Bain Capital, IMM PE and Carlyle Group LP are in the running for the deal, the people said this week.

Bain Capital has teamed up with South Korean private-equity firm Hahn & Co. to make its bid, the people said, adding Standard Chartered's private-equity arm and Affinity Equity Partners are also among those still considering bids for the asset.

The private-equity interest in the Korean company comes at a time when firms in Asia are sitting on some $120 billion of unspent money and are eager to deploy that capital.

South Korea presents attractive opportunities for private-equity buyers, given the maturity of the market and the prevalence of large deals in which a buyer can take full control, such as this one.

Tyco disseminated an information memorandum to private-equity firms late last year in an effort to unload the asset in its entirety. It isn't clear why Tyco wants to sell its Korean unit. Morgan Stanley is handling the sale process. Tyco first bought what was then a 68.5% stake in Caps in 1999 and delisted it from Korea's Kosdaq market after acquiring the rest of the company later that year.

The industrial conglomerate spun off its North American security business last year to create ADT Corp. It also split off and then merged its pipe-and-valve business with pump-filter manufacturer Pentair Inc., leaving the rest of Tyco to focus on fire-suppression systems for commercial buildings and safety equipment.

Last year, Tyco also agreed to acquire the security-and-surveillance products firm Exacq Technologies for $150 million to expand its presence in the video-security market.

While Korea is an attractive market for private-equity buyers, it hasn't been particularly friendly for foreign buyers in recent years, after Dallas-based Lone Star Funds copped heat for the successful exit of its investment in Korea Exchange Bank.

Lone Star, which first invested in KEB in 2003, only managed to sell its 51% stake in the bank to Hana Financial Group in 2012 after repeated failed attempts over the years, a process wracked by legal challenges and a drawn-out ruling on the sale by Korean regulators.

Some critics in Korea said Lone Star made too much money from its investment after buying the asset at a bargain price after the Asian financial crisis. The protracted negotiations involved in Lone Star's exit and the criticism that the deal attracted soured sentiment for foreign private-equity firms operating in Korea.

Foreign private-equity firms have once again started looking at buying Korean assets, however, in part because the Korean market held up in the face of a selloff in emerging markets last summer. Total private-equity investments, including minority stakes, rose 55% last year to $6.3 billion when compared with the year prior, according to Dealogic data. That level is a record for the past five years, and more than double the $2.5 billion that private-equity firms invested in South Korea in 2008, for example.

Write to Cynthia Koons at [e-mail] and Kanga Kong at [e-mail]

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