Ever since Levi’s first introduced denim jeans in the late 1800s, the denim industry has continued to grow regardless of the economic situation, according to Jung Jang-geun, a veteran financial investor based in Seoul.

“As long as the population grows, it is impossible to see the denim industry slowing,” Jung said in an interview with The Korea Herald. “Denim jeans may be a fashion item in developed countries now, but they are still work wear for laborers in emerging countries.”

Jung’s team at JKL Partners, a Seoul-based private equity firm, decided to buy a 77 percent stake in TCE Corporation, whose production facilities are in Vietnam.

JKL Partners will acquire the stake with managerial rights for 63 billion won ($53 million). The private equity firm is planning to ink the deal soon.

JKL Partners, established in 2001 by Jung and two other colleagues, has been investing in a wide range of businesses across industrial sectors, including manufacturing, engineering, transportation, food and beverage, fashion, rental services and offline-to-online services. The three founders were accountants at Samjong KPMG, who were in charge of auditing merger and acquisition deals and corporate restructuring projects.

“We first examine fiscal conditions of a candidate company and macro cycles of the industry it is in,” Jung explained. “The company’s position in the industry and growth potential are the next things to be considered. Then, we mull over our role: How can we raise the value of this company with our capital?”

“A match of the company’s growth history and our imaginative power is the key to a successful deal,” he added.

It took three years for Jung to make the decision to invest in the denim maker amid growing uncertainties in the world economy and financial markets. Usually it takes six months to one year to make a decision, but Jung was more cautious this time.

“We would (rather) pay a higher price for less risk rather than buy a high-risk firm at a lower price,” he said. “We’ve reached a conclusion that denim manufacturing is a capital-intensive and technology-intensive business whose labor cost is less than 5 percent of the total costs.”

TCE originated from Korea’s Tae Chang Enterprise founded in 1956. The company was the first corduroy, velveteen, stretch woven fabric and denim provider in the country. It started focusing on denim in 2007 and relocated its production to a place near Hanoi in 2014. The company’s headquarters are still in Seoul.

“Uniqlo used to have an exclusive denim supplier, globally known as Kaihara,” Jung said. “It started ordering TCE denim in June 2014. I hope to see tags in denim jeans reading ‘By TCE’ all around the world.”

Starting with 3 billion won in capital 15 years ago, JKL Partners has 1 trillion won under management through 10 buy-outs and 10 minority investments as of November.

Before buying the denim maker, JKL purchased a 56.3 percent stake in GDK Cosmetics for 20 billion won in October. It took over a 70 percent stake in Ker Heung Industrial, a steel frame builder, for 56 billion won in September. The biggest buyout was a 1 trillion won Pan Ocean deal in June 2015. The firms are currently under management by JKL.

The PE firm exited from four funds, reaping about 17 percent in internal rate of returns. It achieved the highest returns of 39.6 percent from the Tapex exit, a tape manufacturer, in 2010.

Amid protracted low interest rates and low growth, there are more opportunities for PEs in stimulating the investment environment, Jung forecasts.

“As pension fund operators are seeking higher yields, they will have to rely more on alternative investments through private equity funds,” he said. “The market conditions now favor PEs to grow with both supply and demand striking a balance.”

Korean PEs have been expanding their presence in a somewhat unusual manner through one-time or minority investment projects. This contrasts with their Western counterparts, which seek long-term buyouts, Jung said.

Jung said Korean PE firms had helped alter the past pattern of M&A being a lifetime big event, with M&A becoming frequent and involving small or medium-sized deals that happen almost every other day.

“Korean PE firms that have been engaged in several minority investment projects can contribute to large-scale deals afterward,” he said.

Jung said that investment firms can contribute by offering financial advice, capital and other things to struggling businesses that still possess growth potential.

Most recently, Jung’s firm set its eyes on a newly emerging economic sector – offline-to-online, or O2O, businesses.

JKL invested 24 billion won through With Innovation, an O2O business that developed smartphone accommodation reservation applications Good Choice and Hotel Time. Among many O2O service providers, With Innovation is a rare success that is actually making money, according to the investor.

“Investment has trends,” Jung said. “It is impossible to ignore surrounding changes. In today’s economy, there are new star players rising fast and disappearing quickly. The new economies carry high risks and high yields, which is quite tough for PE firms to deal with, since they are not venture capitalists.”

Jung acknowledged that there were some emerging businesses he had to give up investing in, like biotechnological and mobile-based firms, because of excessive risks.

“Every moment, there are businesses being created somewhere we don’t know,” he said. “We try to allocate 20 to 30 percent of our funds under management to such new businesses.”

By Song Su-hyun (song@heraldcorp.com)