Bain exits Domino's Japan, retains slice

Unsurprisingly, domestic brands that recognize these quirks have fared well - Pizza-La has kept its number one spot in the market for a number of years. 

Yet global brands have made inroads, notably Dominos Pizza Japan - the master franchisee for the country - which was partially exited by Bain Capital last week. The PE firm sold a 75% stake to Dominos Pizza Enterprise (DPE) for JPY12 billion ($123.4 million) plus JPY9 billion of debt, valuing the business at JPY25 billion.

Bain will retain a 25% a stake, with an option to exit the remainder to DPE three years from completion of the acquisition, at a price-to-earnings multiple of 17.5x. "We will continue to support the Japan business based on our knowledge of the sector, and then undertake a full exit in accordance with the terms of deal and based on the company's performance," says David Gross-Loh, managing director with Bain.

Bain acquired DPJ back in 2010 - when it was called Higa Industries - from a group of shareholders that included Duskin, the firm behind Japan's Mister Donut chain, Daiwa SMBC Capital, and promoter Matsuo Ernest Higa. The price wasn't disclosed but industry sources valued the business at about JPY6 billion, or around 6x EBITDA.

DPJ soon expanded from 173 to 259 stores, going beyond Tokyo and Osaka into tier-two cities like Nagoya, Kobe, Kyoto, Fukuoka and Sendai . The number of franchisees also increased as store managers were given the opportunity to open their own outlets under an "employee-to-own" program.

"By changing the economics and making this into an entrepreneurial opportunity for people to start their own business we really got the new store engine humming," Gross-Loh told AVCJ in May. "We still think there is potential for 600-700 stores in Japan."

The strategy seems to have paid off. New customers have grown from around 120,000 a month to more than 160,000 in the last three years; same store sales growth has reached 8%, superior to McDonald's and KFC; and DPJ has stolen the number two spot in the Japanese pizza delivery market from Pizza Hut. Revenue came to around $228 million for the year ended March 2013, with EBITDA of $25 million.

DPE - also the master franchisee for Australia, New Zealand, France, Belgium and Holland - was a logical choice of exit, but Gross-Loh explains that Bain had not been considering a sale until DPE made an approach. DPJ's senior management will remain in place as the company chases its long-term target of 600 stores.

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• Topics
• Consumer
• North Asia
• Exits
• Buyout
• Bain Capital Asia
• Japan
• Consumer
• Exit