When South Korea’s VIG Partners invested in the local funeral services industry nearly nine years ago, it raised eyebrows – especially those of its LPs. Cut to 2025, it has agreed a more than KRW 1trn (USD 708m) exit that will deliver a 3.5x return, according to Jason Shin, a co-founding partner at the firm.

The sale of Preed Life to Woongjin Group, a chaebol specialising in education and publishing, is expected to close within the first half of the year. It caps a long and strenuous journey in which VIG built a market leader in a fragmented, underdeveloped, and mismanaged industry, having identified an opportunity to turn demand from Korea’s rapidly ageing population into reliable cash flow.

“The Korean funeral culture is highly unique, but we didn’t expect to have such a difficult time explaining the funeral service industries to foreigners,” said Shin, referencing the puzzled looks from some global institutional LPs when an investment in Joun Life was proposed in 2016.

“It was probably not an industry that buyout funds or the major chaebols were all that interested in.”

Preed Life is held across VIG’s third and fourth funds; it will be the third full exit for the former and the first full exit for the latter.

Fund III, now entering its eighth year, is expected to make two more exits over the next 6-12 months, Shin added. Preed Life will take distributions to paid-in (DPI) to 1.2x. Should those two additional exits pan out, DPI will be close to 1.8x. Prior to Preed Life, VIG’s most recent exit was Foodist – another Fund III portfolio company – which was sold for KRW 285bn, delivering a 2.2x return.

VIG is looking to raise USD 1bn for its fifth fund, and reached a first close of KRW 470bn, sourced entirely from local investors, in February 2024. The firm is now ramping up its marketing to international LPs. Fund IV closed on USD 810m in 2020.

Building scale

When VIG mobilised Fund III to invest in Joun, there were about 250 funeral services players in Korea. Now, there are about 70. Consolidation has been essential to the development of the broader industry – and to VIG’s exit prospects, according to Shin.

“In Korea, the biggest issue in the exit market comes down to the size of the asset you are trying to exit. The bigger the asset you own, the harder it is to sell,” he explained.

While private equity interest in the asset was limited, there was significant Korean corporate interest in Preed Life, ahead of and during the sale process. This is seen as an endorsement of the notion that VIG has corporatised the funeral services industry, giving it mainstream appeal. Woongjin will become the first chaebol to meaningfully participate in the space.

Joun was Korea’s 11th largest funeral services provider. VIG had approached larger players but was rebuffed by founders. In 2020, however, Preed Life, one of the market leaders, became available. This positioned the platform to make other acquisitions, and it is now the clear industry number one.

“Through a series of bolt-on acquisitions and mergers, we were able to climb that ladder. Scale was very important for this business, and it took longer than usual. This industry and this company warranted a longer holding period because of those complexities,” said Shin.

Korean funerals are exceptionally long, typically comprising three continuous days of mourning attended by hundreds, if not thousands, of guests. Preed Life offers a range of services required during the course of the rites, from flowers and transportation to food and beverage and attire.

Asset management

Notably, the company operates under an asset management-style business model. Customers make prepayments – effectively subscriptions – through a fixed period prior to the funeral, as opposed to committing lump sums. Under VIG, insurance professionals were hired to oversee this operation.

There was also a “strategic alliance” with Seoul-based Mastern Partners based on securing the latter’s expertise in managing large amounts of cash, Shin explained. This led to Mastern buying 10% of PreedLife in 2023.

At the time of VIG’s investment, Preed Life had 1.4m subscribers and KRW 1.3trn in advance payments. This has since grown to 2.3m subscribers and KRW 2.6trn in advance payments. This has contributed to the company moving from an operating loss in 2020 to a KRW 98.5bn in operating profit in 2024. Over the same period, revenue grew from KRW 73.5bn to RW 276.7bn.

Another liquidity event came last year, when KKR’s credit unit provided a tailored capital solution – comprising senior debt plus a minority structured equity investment – at a valuation of KRW 1trn. This allowed VIG to make a distribution to LPs.

According to Shin, the private equity firm wasn’t planning to make a full exit so quickly. It was in advanced discussions about placing Preed Life into a single-asset continuation vehicle, but ultimately, Woongjin’s interest and reluctance to commit to a further five-year hold prompted the trade sale.

“We think the Korean funeral services industry has predictable and consistent growth. It’s certainly been the case for the last seven years and we expect the same in the near future. The industry itself is very stable and consistent in terms of growth, and very profitable if you have the requisite scale and leading brand,” Shin said.