French multinational industrial gases and services company Air Liquide SA is considering returning to South Korea after exiting the country a decade ago and is currently in exclusive negotiations to acquire DIG Airgas Co., South Korea's third-largest industrial gas supplier, for more than US$3.3 billion (approximately RMB 23.7 billion).

French companies compete exclusively with South Korean gas companies

French firm becomes sole bidder for Korea Gas.

All rivals have withdrawn

The French company (Air Liquide) emerged as the sole bidder after New York-based Brookfield Asset Management decided not to participate in the final round of bidding and global alternative investment firm Stonepeak's offer fell well short of seller expectations, according to people familiar with the matter.

Offer Meets Expectations

Sources said Air Liquide's offer met seller expectations, adding that Macquarie expects to soon name Air Liquide as the preferred bidder, aiming to close the deal by the end of the year.

A Decade of Returns

The French industrial gases leader's acquisition of DIG Airgas would mark its return to South Korea after a decade. In 2014, Air Liquide sold its entire stake in Daesung Air Liquide, a joint venture established with Daesung in 1979. The joint venture was renamed DIG Airgas.

The company has been attempting to re-enter the South Korean market since last year, bidding unsuccessfully for a 30% stake in AirFirst Co. and management control of Air Products Korea.

Target valuation exceeded expectations

Up for bid is Macquarie Asset Management's 100% stake in DIG Airgas.

Given the South Korean industrial gas supplier's estimated earnings before interest, taxes, depreciation, and amortization (EBITDA) of 208.7 billion won in 2024, the Australian investment firm reportedly hopes to realize nearly 5 trillion won from the sale, valuing the company at over 20 times EBITDA.

Earnings to Boost

In 2017, the company, struggling financially, was acquired by MBK Partners, a Northeast Asia-focused private equity firm, for 1.8 trillion won.

Two years later, the company was acquired by Macquarie Bank for 2.5 trillion won. Under the Australian asset management firm's management, its operating profit increased by 24.9% between 2019 and 2023, with sales reaching 731.2 billion won, a year-on-year increase of 23.7%. In 2024, the company's operating profit reached 139.5 billion won on revenue of 752 billion won.

Given this year's order backlog and expected orders, DIG Airgas expects continued earnings growth in the coming years.

Stable Business Model

DIG Airgas produces industrial gases from refined oxygen, nitrogen, and argon. Its main customers are numerous Korean companies, including Samsung Electronics and SK Hynix.

High Industry Valuations

In South Korea, industrial gas producers are considered lucrative businesses, thanks to their long-term specialty gas supply contracts with major Korean manufacturing conglomerates such as Samsung and SK Hynix.

Enterprise values for industrial gas producers are typically determined at an EBITDA multiple of around 20. In 2023, Seoul-based IMM Private Equity sold a 30% stake in AirFirst, DIG Airgas's smaller cross-town rival, to BlackRock for 1.1 trillion won, representing an EBITDA multiple of 25. Last year, when U.S. industrial gas maker Air Products and Chemicals Inc. put its South Korean subsidiary, Air Products Korea, up for sale, it was valued at 5 trillion won, with an EBITDA multiple of 20.

JPMorgan Chase and Goldman Sachs were the lead advisors on the sale of DIG Airgas.

Source: Content compiled from kedglobal

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