Key Takeaways

• In November 2024, Blackstone, the world's largest private equity firm, signed an agreement to acquire a controlling stake in JJ Tools, a Korean cutting-tool manufacturer. The transaction was valued at roughly KRW 310bn.
• The deal fell short of global mega funds' usual minimum ticket size of around KRW 700bn to 800bn. The gap was bridged with a growth plan built on bolt-on acquisitions of comparable companies to scale the platform.
• The founder had three concerns: succession, production capacity, and overseas expansion. A global private equity firm had an answer to all three. Samjong KPMG acted as sell-side adviser.

What JJ Tools does

JJ Tools, founded in 1997, is a specialist manufacturer of carbide cutting tools. It produces end mills, thread mills, drills and inserts for precision-machining industries including semiconductors, automotive, aerospace and medical devices. With no dedicated overseas sales organization, the company won international customers on value for money alone, and more than half of its revenue now comes from exports.

Why the founder chose a sale over succession

Founder and CEO Park Jong-ik faced three concerns.

1. Succession: He had no intention of passing the company to his children.
2. Capacity: Orders were growing, but the plant was too small to keep up, and growth was at risk of stalling.
3. Overseas expansion: Exports exceeded 50% of revenue, but the company relied entirely on inbound demand and had no organization or network to go to market abroad directly.

All three are problems private equity is well placed to solve. The third, international expansion, is where global private equity firms are strongest, with portfolio companies and networks around the world.

A global private equity firm had a solution for every one of the founder's three concerns.

How a deal below the minimum ticket size got done

The biggest obstacle was size. Large global private equity firms such as Blackstone typically consider only transactions of KRW 700bn to 800bn or more. JJ Tools' enterprise value fell well short of that threshold.

Samjong KPMG persuaded Blackstone not on the size of the company but on the size of the capital that could be deployed after the acquisition, that is, a bolt-on strategy. The plan was to use JJ Tools as a platform and acquire other Korean materials, parts and equipment companies with similar potential, scaling the total investment.

Blackstone's commercial due diligence adviser independently arrived at the same solution.

During due diligence, former executives of Sandvik, the world's largest cutting-tool company, reviewed JJ Tools. Their assessment was that even Sandvik did not run this efficiently.

JJ Tools' global competitiveness and scalability sealed Blackstone's decision to invest on a bolt-on thesis.

What is a bolt-on strategy?

A bolt-on is an M&A approach in which companies in the same industry, or in adjacent upstream or downstream processes, are acquired and attached to an existing portfolio company, the platform. It builds overall enterprise value through economies of scale and synergies, and is a growth strategy widely used by private equity.

Why global private equity fits Korean materials, parts and equipment companies

Across cutting tools and many other materials, parts and equipment segments, Korean products are displacing European, American and Japanese rivals on value for money. But a mid-sized company on its own struggles to build overseas distribution, certifications and local sales. Global private equity brings capital together with international networks and management systems. That makes it one of the most reliable partners for Korean niche leaders that have the technology but cannot get abroad on their own.

With the right investment partner, Korean materials, parts and equipment companies can overtake the established players of the US, Japan and Europe.

Three lessons for owners considering a sale

1. Prove globally competitive strength with numbers. A high export ratio and best-in-class productivity were confirmed as-is in due diligence, and they became the foundation of the valuation.
2. Persuade with a growth plan, not company size. Even a small company can bring a large investor to the table with a credible, verifiable growth plan.
3. Appoint a trusted adviser from the start. This was a demanding transaction that required negotiating simultaneously with investors from Europe, China and elsewhere. Choosing a trusted adviser with deep experience in complex deals matters a great deal.

Which companies does this case apply to?

Companies close to the following profile may consider a sale to a global private equity firm as an option.

• Sector: Manufacturers in materials, parts and equipment or precision machining, where there is overseas demand to replace European, American and Japanese products
• Size: Revenue in the tens of billions of won, below the minimum ticket size of large private equity firms, but with high margins and room to grow through capacity expansion or add-on acquisitions
• Overseas revenue: A high export ratio, meaning product competitiveness has already been proven abroad
• Owner situation: A founder with no succession plan for the next generation, or one who finds growth challenges such as capacity and overseas expansion difficult to solve alone