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IMM Private Equity is considering investing in an online pet supplies retailer after its successful exit from ecommerce fashion platform W Concept.

The Seoul-based private equity firm has recently started due diligence to decide whether to invest in Pet Friends, industry sources said.

This follows the firm’s recent exit from W Concept. IMM PE last month sold its 80% stake in the online fashion store to Shinsegae’s SSG.com for about 200 billion won ($180 million), delivering a 30% internal rate of return in three years.

IMM PE has its eyes on Pet Friends as the firm builds out its portfolio in the ecommerce retail space. Since its foundation as an online-to-offline business in 2016, Pet Friends has grown rapidly by expanding its service to include one-day pet supplies delivery.

Pet Friends secured a 10 billion won Series A funding in October 2019 from GS Home Shopping, Daehan Flour Mills and venture capital firms including Murex Partners, Kingsley Ventures and Timewise Investment. A 2020 Series B funding round was participated by new investors STIC Ventures, ES Investor and ID Ventures as well as most of the existing investors, brining cumulative funds raised to 25 billion won.

The company is weighing a sale to a private equity firm as some of the existing investors want to exit. If any deal for IMM PE to invest in Pet Friends goes through, the firm is likely to buy the entire stakes from the pet retailer’s financial investors and a partial stake from Kim Chang-won, the founder and chief executive of Pet Friends. GS Home Shopping, which currently owns 15.65% of the company, will likely continue to remain a shareholder.

Kim is expected to remain at the company after a potential deal with IMM PE. The transaction, which is expected to be worth about 150 billion won, will likely include purchases of new shares as well as shares from existing shareholders.

Pet Friends looks at Chewy as a role model. The US online pet retailer has grown rapidly in recent years on the back of a shift in shopping patterns to online and an increase in pet owners, positioning itself as a key player in the US pet market. Chewy went public in June 2019, with its current market capitalization sitting at about $30 billion.

The pet products market in South Korea is growing at a rapid pace as secular trends, such as an increase in one-person households, the low fertility rate and the aging population, have led to an increase in pet owners. Experts expect the domestic pet market to grow from 1.9 trillion won in 2015 to 6 trillion won by 2027.

The South Korean pet market is dominated by smaller players. Competition between them to take a bigger slice of the lucrative market could lead to consolidation, with private equity and traditional retail giants paying close attention to the market to have the upper hand.

Pet Friends’ revenue soared to 40 billion won in 2020, compared to 3 billion won in 2018. Its 2020 revenue expected to grow to between 60 billion won and 70 billion won. (Reporting by Hee-yeon Han)