Japan's Nomura to launch private equity unit

The firm, Japan’s largest investment bank, said in a statement that it would commit approximately JPY100 billion ($895 million) to the initiative, with investments to be made through a fund structure. This is part of a broader merchant banking offering in which equity is one solution offered to clients, particularly small and medium-sized enterprises (SMEs).

“Although bankruptcies in Japan are declining, the number of companies closing is on the rise due to a shortage of potential successors. This reached a record high last year and our retail business has recently seen a rapid increase in demand around business succession and M&A for SMEs,” said Koji Nagai, group CEO of Nomura Holdings. “To provide solutions for these needs we have decided to reenter the merchant banking business under a new framework.”

An accompanying presentation noted that Japan-related M&A had more than doubled over the last five years, reaching 648 transactions for the 12 months ended March 2016. Financial sponsors were involved in about one-quarter of these deals. Meanwhile, Nomura has nearly 6,500 M&A inquiries from SMEs in the 2017 financial year, up from about 2,000 the previous year.

The average age of the SME founder has increased from 47 to 66 over the last 20 years, a Ministry of Economy, Trade & Industry (METI) survey found. Two decades ago, three-quarters of these companies would stay within the founding family, but now only about one third follow this path. Asked about succession planning, half said they would wind down their businesses.

While succession and M&A are behind rising SME demand, Nomura identified recalibrating business portfolios and selling off non-core assets as the key opportunities involving larger companies. This view tallies with that of most PE investors, who have seen a record $24.9 billion deployed in Japan this year, according to AVCJ Research. In 2016, $11.2 billion was invested, the most since before the global financial crisis.

Large-scale corporate carve-outs – such as the acquisition of Toshiba Memory Corporation by a Bain Capital-led consortium for JPY2 trillion – are largely responsible for the jump. However, the number of buyouts is rising well, reaching 68 so far this year following a record 81 in 2016, and this is driven by the middle market, where most succession deals are found. Notably, Nihon M&A Center, a listed mid-cap advisor, has seen a 24% jump in its deal count in each of the last two years.

Nomura previously made private equity investments through Nomura Principal Finance (NPF). The unit completed 18 deals worth a cumulative JPY280 billion between 2001 and 2008, generating an IRR of around 25%, Nomura said.

NPF participated in two of the six largest buyouts from the pre-global financial crisis boom period, teaming up with CVC Capital Partners to acquire restaurant business Skylark for JPY380 billion and spending JPY101 billion on manufacturer Tsubaki Nakashima. The outcomes were not favorable. Both companies were sold to other private equity firms at valuations below those paid by NPF.

Nagai added that NPF was “temporarily shrunk” following the global financial crisis and the introduction of tighter capital requirements. AVCJ Research has no records of new investments after 2008.

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• Topics
• North Asia
• GPs
• Fundraising
• Buyout
• Buyouts
• Growth capital
• Australia
• Asia
• Nomura Principal Finance