Weekly digest - October 27 2021

Read more

To coincide with this week's AVCJ Japan Forum...

• Divestment drive: It remains to be seen whether CVC Capital Partners renews its interest in Toshiba Corporation after an aborted approach in April with a $20 billion buyout offer. Even without Toshiba, PE investment in Japan is $22.7 billion year-to-date, the second-highest total on record. Two of the three largest announced deals are carve-outs: Hitachi Metals (by a Bain Capital-led consortium) and Shiseido’s personal care business (CVC).
• Disruptive voices: Toshiba did not emerge as a purported PE target by accident. The company had become embroiled in a corporate governance scandal that turned into a victory for activist investors on its shareholder register. Activist campaigns, mostly targeting smaller companies, have proliferated in Japan. On one hand, these investors have a history of thwarting PE take-private attempts. On the other, they pressure companies into divestments.
• Competition at the top end: EQT is the latest big-name arrival in Japan. Even though its stated focus is upper middle market, there will still be plenty of investors poring over a relatively small number of deals. Japan has seen about a dozen $1 billion-plus buyouts since 2017, twice as many as in the preceding five years. In the $300-999 million segment, change has not been so dramatic. There have been two dozen deals since 2017, up 15% on the earlier period.
• Fundraising still fruitful: The record $11.8 billion raised by Japan focused PE managers in 2020 is unlikely to be matched in 2021. However, the $6.4 billion raised year-to-date is roughly on par with the average for the preceding 10 years. Venture also remains popular, with $2.2 billion raised as of mid-October, compared to $3.5 billion for the entirety of 2020. LPs have committed $12.8 billion to VC managers since 2018, beating the total for the preceding 10 years.
• Early-stage awakening: Momentum in VC fundraising is inextricably tied to rapidly improving sentiment on Japan’s start-up ecosystem. Nearly $2.9 billion had been channeled into early-stage transactions as of mid-October, equal to the all-time 12-month high set in 2019. Similar advances have been made in growth-stage investment in the technology sector.
• Exits flatter to deceive: At $2.7 billion, PayPal’s acquisition of Paidy accounts for 57% of the Japan trade sale total for 2021 to date. Another 38% comes from the $1.8 billion acquisition of Japan Renewable Energy by Eneos Holdings. With INCJ’s sell-down of Renesas Electronics Corporation contributing more than 80% of the public market exit sub-total, the $8.6 billion in overall exit proceeds – the most since 2017 – looks less like a turnaround.

Investment in cleantech and renewable energy in Asia is on a general upward trend, but China seldom accounts for the lion's share. It has averaged 22.5% over the past eight years. But 2021 will be different. Of the $5.3 billion deployed to date, $4.4 billion has gone to China. Investments in electric vehicle battery makers like Svolt Energy Technology have moved the needle, but in the past week Primavera Capital Group and Affinity Equity Partners have made their mark in renewables. Primavera committed $600 million to Envision Group, which primarily manufactures wind turbines, while Affinity invested $360 million in support of a solar roll-out by Towngas China. Both noted China's bold ambition to rebalance its energy mix away from coal-fired power and towards renewables. At a time when investors are wary of unforeseen regulatory action, both are examples of aligning with government policy.

All of the trends featured here were sourced from AVCJ's proprietary database, AVCJ Research, featuring comprehensive information on private equity deals, fundraises and exits.

Read more on AVCJ Research