Longreach achieves first close on North Asia buyout fund

The vehicle launched in November of last year and the first close was pushed forward because the GP has multiple deals in the pipeline, according to a source familiar with the situation. Longreach declined to comment on fundraising.

The PE firm, which was founded by Mark Chiba and Masamichi Yoshizawa, raised $750 million for its debut fund in 2006. Fund II was more of a challenge due to post-global financial crisis cutbacks and weaker sentiment on Japan. After more than two years in the market, the vehicle closed in 2011 at $400 million. LPs include Korea Investment Corporation, Japan's Pension Fund Association and Temasek Holdings-owned Pavilion Capital.

Longreach takes a concentrated approach to mid-market buyouts, only making 6-8 investments per fund. Deals fall within the $50 million to $250 million range. The firm targets companies in Japan and businesses elsewhere in Asia – typically Taiwan and Hong Kong – where its networks and execution capabilities in Japan can offer differentiated value.

Longreach has a history of carving out assets from Japanese conglomerates. More deal flow is expected to come in this area as companies take significant reorganization and restructuring decisions, recognizing that they must focus on a narrower set of business lines in order to remain globally competitive.

Private equity investment in Japan reached a nine-year high in 2016 of $10.2 billion, largely as a result of KKR agreeing to buy Nissan Motor’s stake in Calsonic Kansei Corp. and launching a $4.5 billion tender offer for the entire business. KKR has since struck a similar deal involving a Hitachi power tools subsidiary, with the conglomerate saying that the GP was best positioned to help the unit achieve growth in the face of rising competition.

Longreach takes a version of this strategy into the middle market, particularly the industrials, consumer and services sectors. Fund II includes a precision drilling business acquired from Hitachi, molded plastics manufacturer Sol-Plus Group from Arrk Corporation, and Nippon Outsourcing Corp. from Olympus. The GP also bought First Kitchen, a local restaurant operator controlled by Suntory Holdings, and is using it as a vehicle to develop the Wendy’s franchise in Japan.

The fast start on Longreach’s third fundraise reflects a growing interest in Japanese private equity. Numerous middle market GPs are in the market, with Advantage Partners, CLSA Capital Partners, J-Star, NSSK, Polaris Capital and Ant Capital Partners among them. This week CITIC Capital Partners closed its third Japan buyout fund at the hard cap of JPY30 billion ($268 million).

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• Topics
• North Asia
• Buyout
• Fundraising
• GPs
• Japan
• China
• The Longreach Group Limited