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South Korea’s LX Group is in advanced talks with Glenwood Private Equity to buy one of the country’s biggest glass producers in a bid to create synergies with its existing businesses.

The Seoul-based private equity firm signed a memorandum of understanding on Friday to enter exclusive talks with LX International Corp, the trading arm of LX Group, to sell a 100% stake in Hankuk Glass Industries, according to industry sources.

LX International will carry out detailed due diligence in the coming weeks, with a definitive share purchase agreement expected to be signed in February next year.

Hankuk Glass Industries, alongside KCC Glass Corp, is one of the two dominant players in the domestic glass manufacturing market. The domestic flat glass market is currently short of supply.

The acquisition of Hankuk Glass Industries by LX International would help LX Hausys strengthen its position in the country's construction materials market.

LX Hausys is one of the country’s two largest construction materials manufacturers along with KCC Glass but has lower profitability than its rival, mostly due to its higher raw material costs. The potential acquisition would generate synergies by enabling LX Hausys to hedge raw material uncertainty.

“The rising price of glass has increased the cost burden on manufacturers of windows and doors,” an industry insider said. “With the increased construction of high-rise apartments, the demand for glass is on the rise due to its lighter weight.”

Synergies are also expected with LX Pantos as the logistics arm of LX Group could absorb logistics demand from Hankuk Glass Industries.

With rising interest in environmental, social and governance (ESG) issues, the acquisition of Hankuk Glass Industries – whose main products include energy-efficient low emissivity coated glass – could help to improve the eco-friendly image of LX International.

Under Glenwood PE’s ownership, the glass producer has also heavily invested to install a more energy efficient furnace facility, which is expected to be operational next year, in order to reduce carbon emission during the process of manufacturing glass.

“As ESG rises in importance, the demand for low emissivity coated glass is increasing, mainly from public institutions,” an industry insider said. “For LX International, Hankuk Glass Industries is an attractive target for acquisition, especially given the trading company’s push for eco-friendly businesses.” (Reporting by Hyo-jung Lim)