This article was posted on the ChosunBiz MoneyMove (MM) site at 8:43 a.m. on Jun. 2, 2025.
Global private equity fund operator Kohlberg Kravis Roberts (KKR) has reportedly made a bid containing an "earn-out" clause to SK ecoplant, solidifying its position as a strong candidate for acquiring the environmental subsidiary.
"Earn-out" refers to a clause used in mergers and acquisitions (M&A) contracts that allows the seller to receive additional payments based on the performance of the acquired company. If the performance of the target company meets certain objectives, the buyer pays the seller the previously agreed-upon additional amount.
On Jun. 2, investment banking (IB) industry sources reported that KKR submitted an offer of about 1.9 trillion won, which was the closest to the price SK ecoplant sought during the preliminary bidding process held in April. However, 500 billion won of that amount is structured as an additional payment for each additional landfill completed.
"Earn-out" is often utilized when there is a significant price difference between the seller's and buyer's expectations. From the buyer's perspective, it can help share risks and provides the advantage of fair price assessment based on performance. SK ecoplant has sought a sale price around 2 trillion won, while prospective buyers have been hoping for a price in the mid-1 trillion won range.
The sale involves a 75% equity stake in Renewus, SK ecoplant's environmental management subsidiary (formerly Environmental Facility Management), and a 100% equity stake in Renewon (formerly Daewon Green Energy). The capital of the two companies amounts to approximately 720 billion won, and their earnings before interest, taxes, depreciation, and amortization (EBITDA) reach 120 billion won. Renewus is a water treatment company, and Renewon is a waste incineration and landfill company.
An IB industry official noted, "In the case of landfills, there are variables related to permits, so this method is often used in mergers and acquisitions involvimg waste management companies," adding, "There are instances where new landfills are constructed or existing landfills are expanded with the necessary approvals."
The industry believes that KKR has a stronger acquisition intent since it submitted a higher bid than STIC Investments. KKR is currently conducting due diligence on Renewon and Renewus business sites. STIC Investments has completed the previous phase of due diligence through a virtual data room (VDR) and a question-and-answer (Q&A) format.
As SK ecoplant strives to improve its financial structure, it has decided to sell its environmental subsidiary, judging that there is little synergy with its main operations. SK ecoplant has acquired more than 15 eco-friendly companies for a total of 4 trillion won by 2023, including Renewus and Renewon. During this process, its borrowing funds have increased sharply, leading to interest expenses of 317 billion won and 413 billion won in 2023 and 2024, respectively.
There is also an obligation to go public by next year. When SK ecoplant conducted a pre-initial public offering (IPO) fundraising of 1 trillion won in 2022, it promised investors that it would go public by 2026. Failure to do so would result in additional interest burdens. SK, the seller, is reportedly planning to select a preferred negotiator after receiving one more price offer later this month.