[THE INVESTOR] MBK Partners and Golfzon -- the nation’s largest private equity firm and operator of the popular golf simulator chain -- are seeking to acquire dozens of local golf courses together possibly to create a new, affordable golfing brand, according to news reports on Sept. 27.
Golfzon Newdin, the holding arm of Golfzon Group, plans to issue new shares worth 1 trillion won (US$877 million) in its golf course management unit Golfzon County, while MBK is acquiring half the shares to become the second-largest shareholder.
Golfzon Newdin shares soared more than 10 percent in early morning trading following the reports. As of 2 p.m., the stock was trading at 5,280 won, up 6.53 percent from the previous day.
Industry watchers say MBK is not just aiming to acquire the sizeable stake but also looks to reorganize the nation's golfing industry like Goldman Sachs did in Japan decades ago.
The US investment bank purchased some 30 bankrupt golf courses in Japan in the 1990s and set up a new franchise brand Accordia Golf, now the nation’s largest chain with more than 136 locations around the country.
It was a lucrative investment for Goldman Sachs that earned US$500 million when Accordia made a stock debut in 2006. So far, Accordia has maintained an almost 15 percent earnings rate through cost-cutting efforts and more importantly lowering green fees to attract more customers.
In February this year, MBK acquired Accordia for 1.5 trillion won (US$1.32 billion), including its debt of 633 million won, possibly to mimic the success story of Goldman Sachs.
“Operating a golf course in Korea is trickier and more expensive,” said an industry source on condition of anonymity. “Compared to other countries, Korea has smaller territory, which means more money for construction and maintenance.”
In Korea, many golf courses are struggling from slow sales. About 100 of them are estimated to be up for sale. Considering it takes about 60 billion won to 100 billion won to acquire a 18-hole golf course, MBK and Golfzon are expected to purchase up to 30 cash-strapped golf courses with the new investment.
Sources say MBK, which has focused on buyout deals, is diversifying its business strategy as they are expected to participate in the overall process indirectly. It is not clear whether the new chain will adopt the Accordia brand name.
For Golfzon, its flagship simulated golfing business whose key customers are those in their 20s to 40s is also likely to benefit when golfing becomes more affordable.
“Golfzon’s screen golf chain has made golfing cheaper and more accessible. Young people who experienced simulating golfing are now enjoying field golfing that used to be enjoyed by older and wealthier business people,” another source said.
“If golfing becomes more affordable in the future, it would be a boon for Golfzon’s simulated golfing business as well.”
In Korea, a green fee for using an 18-hole membership golf course is priced at about 200,000 won per person, while the fee for Goflzon’s screen golf is less than 30,000 won. The overall green fee in Japan is less than 100,000 won.
By Lee Ji-yoon (firstname.lastname@example.org)