Life after leverage

Masters of the universe? Not even close. The first big non-financial leveraged buy-out to be struck outside Japan since the collapse of Lehman Brothers shows the formerly swaggering heroes of private equity in a whole new light: politic, deferential, glad to be of use.

Fittingly, the show has reopened a long way from Wall Street: in Seoul, where Kohlberg Kravis Roberts has won an auction for Oriental Brewery, Anheuser-Busch InBev's South Korean beer business. The transaction itself bears only passing resemblance to the blockbusters of old. For starters, it is for a unit of a public company rather than the company itself. Second, even though the parent is in a fair amount of distress – labouring under a $61bn gross debt pile and with a number of auctions under way round the world – KKR is paying a pretty full enterprise value of $1.8bn, or 10 times last year's earnings before interest, tax, depreciation and amortisation. Global brewers are trading between seven and eight times.

True, that number includes $50m of cash and $300m of financing from the seller, which would cost KKR a lot more to obtain on the open market. But Korea's beer market is a heavily regulated duopoly that the government can easily make three; the withdrawal from the bidding of Lotte Group, the domestic conglomerate seen as the natural buyer for OB, suggests that Lotte may have liberalisation in mind.

Third, KKR is writing an unusually big equity cheque of $750m – within a whisker of the maximum 20 per cent exposure of its $4bn Asian fund to any single deal. The remaining $750m comes from a syndicate of eight international banks, arranged not by a pliant lead underwriter, as in the glory days, but by KKR itself.

KKR has also had to sprinkle in various sweeteners to clinch the deal: a payment of 15 per cent of any upside above a specified hurdle back to the vendor; the right to re-acquire OB within five years of closing, at 11 times ebitda; and copious assurances to unions that jobs will be protected. And to think – executives once quaked in their boots!