AVCJ Awards 2015: Deal of the Year - Mid Cap: SBI Life Living

With acquisitions such as Sanyo Electric's digital camera unit and Hitachi High-Tech Instruments, Advantage Partners has developed a reputation for mid-market corporate carve-outs in Japan. It served the firm well when pursuing SBI Life Living.

Corporate parent SBI Holdings conducted a strategic review of its business last year and concluded that the Life Living asset was non-core. Advantage identified the opportunity and then had to persuade SBI Holdings that it was the most appropriate buyer.

"We have a strong relationship with the senior management of SBI Holdings and we have experience doing these kinds of transactions. SBI valued this experience and our insights into the business," says Toru Indo, a principal at Advantage. The GP agreed to buy Life Living at an enterprise valuation of JPY10.6 billion ($86 million) and the transaction closed in February 2015.

The deal presented two additional challenges that don't necessarily come with a standard carve-out. First, Life Living was listed and so Advantage had to structure the transaction as a tender offer, which meant addressing the needs of minority shareholders. A majority of the minority supported the bid.

Second, the private equity firm wanted SBI to re-invest in the deal and hold a 20% stake in Life Living. This was mainly driven by the fact that many employees at the subsidiary had been dispatched from the parent, and Advantage felt it was important to retain some ties to SBI.

Not all the existing management stayed with the business post-acquisition and Advantage built a new team under the leadership of a chairman who previously served as CEO at another of the GP's portfolio companies, condominium management business Community One. "He has a strong background in real estate and he is experienced in the internet and entertainment businesses as well," Shinichiro Kita, a senior partner at Advantage, adds.

These two competencies are particularly important given the disparate nature of Life Living's operations. The company reported EBITDA of JPY2.99 billion and revenue of JPY8.1 billion for the 12 months ended March 2015, split between a real estate development unit and an internet media platform.

While the real estate business is expected to see steady growth internet media is on course for faster expansion. Life Living's prime assets is Ticket Retail Center, Japan's leading online ticket exchange platform for live events. Additional capital has been allocated for service planning, systems development, marketing and recruitment.

In the absence of synergies between the two businesses, Advantage concluded that dividing them up was the best way to ensure each one could prosper. "Different organizations, different financing, and different management are required for each to realize its potential," Kita adds. "We decided to manage the two organizations separately."

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• Topics
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