Advantage exits Japan massage chain in $300m sale

The private equity firm acquired a 75% stake in the business at a valuation of $50 million, including debt, in October 2013, facilitating an exit for one of the company’s three founders. The other two founders, Yukihiro Takenouchi and Satoshi Koizumi, reinvested in the business – taking a combined 10% interest – and continued to serve as directors. Takenouchi has now bought out Advantage.

The deal has returned more than the entire capital of the private equity firm’s bridge fund, which closed at JPY20 billion (then $200 million) in 2013. Advantage has since followed up with a full-scale fifth vehicle, completing fundraising earlier this year at the hard cap of JPY60 billion.

Established in Osaka as a small chain offering back and shoulder massage, Riraku – which takes its name from "rirakkusu," the Japanese word for "relax" – specifically targets the mass market. The company’s services are priced at around JPY3,000 per hour and more than 1,000 massages are completed by each outlet every month. Most other salon operators charge JPY6,000-10,000 per hour and see half as many clients.

When Advantage was first alerted to Riraku through an intermediary the company had only been operational for about two years. It tracked the business for 12 months and was impressed by the growth rate. The GP also saw the same kind of potential for scale that it had managed to realize in other parts of the services sector through the introduction of professional systems and management.

Riraku has grown from 240 directly-owned outlets when Advantage invested to 569 outlets as of the end of August. The company’s geographic footprint has also expanded from Kansai, the western region including cities such as Osaka and Kyoto, to cover the whole of Japan. Meanwhile, EBITDA has tripled to more than JPY3 billion – and not only as a result of pursuing scale.

“We put in place the infrastructure, including IT systems, and that helped us achieve bigger scale in a stable manner,” said Daisuke Murakami, a principal at Advantage. “From 2017, following long discussions with management, we decided to enhance the quality of service for customers and therapists.”

Initiatives on the customer side include a new style of treatment whereby clients lie on their sides rather than their backs, fully exposing the back and allowing a deeper massage of the back and shoulders. These treatments are delivered on higher quality mattresses – at an additional cost of JPY500 per session – that are more resilient and remain comfortable even for longer treatments.

Therapists now participate in a ranking system, which means they can enjoy higher compensation based on customer feedback and length of working hours. Riraku has also taken steps to improve staff training, with novice therapists put through a three-month apprenticeship alongside more experienced practitioners. Once established, therapists can attend regular seminars to review and upgrade their techniques.

Riraku has become the largest player in Japan’s massage chain industry by number of stores, with a 15-20% market share. The new owners believe they can double the size of the network once again.

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• Topics
• North Asia
• Consumer
• Buyback
• Japan
• Advantage Partners