Japan carve-out opportunity moves beyond conglomerates

“What I’m seeing in Japan is that in addition to the large blue-chip companies, there’s an increasing number of middle-sized companies that are starting to look at selling non-core businesses. Just like with the conglomerates, they were in distress situations before, but now, we’re seeing more proactive strategic reorganizations,” Tsuyoshi Yamazaki, a director at Integral, told AVCJ.

“For the middle-sized companies, they are sometimes carving out businesses that are 25-35% of overall revenue, so it’s a tough decision for them – but they’re making those decisions now.”

The comments follow Integral’s JPY50 billion ($471 million) carve-out of a vending machine and convenience store equipment supply subsidiary of Sanden Holdings Corporation, a Tokyo-listed electrical and automotive player with a market capitalization around JPY17 billion.

The deal, expected to reach a final close in the next two weeks, will give Integral an 80% stake in Sanden Retail, a developer of next-generation vending machines that is also a leading player domestically in the supply of refrigeration units to convenience stores. It will also allow Sanden Holdings to focus on its automotive business, which represents about 75% of revenue versus 25% for retail.

Integral has realized at least one previous carve-out from a mid-size company with the acquisition of a business process services division from Frontec Corporation in 2008. That deal was precipitated by Frontec filing for bankruptcy protection in the US and is therefore seen as illustrating a key evolution in the market from distress toward more premediated divestments.

The Sandem Retail deal will see its current leadership remain intact under CEO Masuya Mori. Integral is examining a number of similar deals with middle-sized corporations across various sectors with a priority on maintaining incentivized management. 

“One of the most important points in doing a carve-out like this work is that you need to have a strong leader in the carved-out business,” Yamazaki added. “If you have to dispatch a new CEO, that can be very difficult in Japan because there won’t always be a cultural fit. That’s why we usually prefer management buyouts instead of buy-ins in these kinds of situations.”

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• Topics
• North Asia
• GPs
• Buyouts
• Japan
• Integral Corp.