Doubled Profits
Goldman Sachs Group Inc. is expected to double its profits with sale in two years after acquiring Daesung Industrial Gases Co., one of South Korea’s biggest industrial-gas producers.
The Wall Street Journal reported on November 24 (local time) that the Goldman Sachs Group, the largest shareholder of Daesung Industrial Gases, plans to sell its 100 percent stake in the company for up to US$2 billion (2.36 trillion won), according to a person familiar with the situation. The figure is almost twice as much as earlier market expectations of some 1 trillion won (US$849.26 million). In July 2014, a Goldman Sachs-led consortium paid US$400 million (471.5 billion won) to buy 68 percent of Daesung Industrial Gases from Daesung Group Partners Co. When the Goldman Sachs Group succeeds in selling the company at the price it hopes to obtain, it will be able to make a profit of US$800 million (942 billion won), which is about double its investment to purchase the stakes.
Investment banking industry sources said the sale value of Daesung Industrial Gases is estimated at around 1.47 trillion won (US$1.25 billion) based on its earnings before interest, taxes, depreciation, and amortization (EBITDA) of 112.8 billion won (US$95.8 million) last year. It is calculated considering the fact that the corporate value of global industrial special gas producers is 13 times higher than its EBITDA on average. In addition, they said Daesung Industrial Gases is highly likely to sell at some 2 trillion won when including the EBITDA of its key assets whose stakes are owned by Daesung Industrial Gases like Green Air (49 percent), Reming (40 percent) and Seoul Cold Air Products (37.5 percent).
More than 10 parties have received an information memorandum (IM) and is seeking acquisitions, such as global private equity funds like Blackstone, the Carlyle Group and KKR and global gas firms like Air Liquide and Praxair. SK Group made public announcement that it hasn’t decided whether or not to join the bid yet. However, it seems to be aggressively working on the takeover.
Goldman Sachs Group expects a strong competition for the sale since there is high barriers to enter the industrial special gas market and high possibility to stably create cash. However, the total debts of Daesung Industrial Gases exceed 800 billion won (US$679.41 million) and its debt rate reach 464 percent. Accordingly, the company’s financial unsoundness can be an obstacle to the sell-off deal.
Daesung Industrial Gases produces industrial gases like nitrogen and oxygen that are used in a wide range of industrial production processes including in the semiconductor and display industries. Its holding company, Daesung Group Partners, was forced to sell the stake in Daesung Industrial Gases after it overextended itself in the construction and real-estate sectors and needed to raise cash by selling assets. Goldman Sachs Group plans to receive preliminary bids for the nation’s major industrial gas provider by early next month, select a shortlist, conduct due diligence and conclude a formal contract in February next year at the latest.