Baring Asia completes Joyful Honda exit, secures 45% IRR
Baring Private Equity Asia has completed its exit from Japanese home improvement center operator Joyful Honda – the first joint investment by the firm’s private equity and real estate funds – generating a gross IRR of around 45%.
The GP last month agreed to sell 16.2 million shares – its entire 31.4% stake – for JPY3,497 apiece through participation in a tender offer launched by the company. The total consideration was JPY56.6 billion. The entire tender offer was for 16.3 million shares. The price represented an 8% discount to the July 7 close, but it is still an approximately 50% premium to the price at which Baring acquired its position in March 2016.
The private equity firm bought the stake from Marunouchi Capital for JPY38.9 billion (then $350 million), becoming the single largest shareholder. According to a source familiar with the situation, Baring saw enormous potential in Joyful Honda as a family-run business that was in the process of institutionalizing. It believed the share price didn’t reflect the company’s true value.
Founded in 1975, Joyful Honda has four main verticals: Honda Sangyo, which operates arts and crafts stores; Smile Honda, a home renovation materials supplier; Joyful Athletic Club, which runs sports clubs; and Joyful Shaken & Tire Center, a vehicle inspection and servicing business. The company operates 15 stores, typically out-of-town campuses where the different retail brands sit side by side.
Baring’s private equity and real estate teams worked together on the due diligence and asset valuation process, and then took a coordinated approach to value creation. These initiatives included improvements to Joyful Honda’s management team, floor space optimization, store renovation, and procurement efficiencies.
Sales came to JPY158.7 billion for the 12 months ended June 2016, down 2.2% year-on-year. Net profit rose 19.6% over the same period to JPY5.45 billion. The company projects sales and net profit of JPY163.2 billion and JPY6.2 billion, respectively, for 2017.
The Joyful Honda exit is Baring’s first from its sixth fund, which closed at $3.98 billion in early 2015. The private equity business has made seven investments in Japan over the past 10 years, of which one remains – Bushu Pharmaceuticals. Baring closed its debut real estate fund in 2015 with $365 million in commitments.
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