Polaris pursues take-private of Japan's Sogo Medical

This is the third private equity-backed tender offer for a Japanese company announced in the past two weeks – a development that industry participants to some extent link to fears about the growing prominence of activist investors. Last week, Bain Capital offered JPY90 billion for Showa Aircraft Industries and then Integral Corporation bid JPY34.4 billion for Mamezou Holdings.

Polaris is willing to buy all outstanding shares in Sogo Medical for JPY2,550 apiece, according to a filing. It is working in conjunction with existing management – including founder and CEO Kenji Sakamoto – and has won support from shareholders representing 46.65%. At least two-thirds of the ownership base must approve the deal for the tender offer to proceed. Mitsui & Co, the company’s largest shareholder with a 25.52% stake, is among those that have agreed to sell.

Sogo Medical was established in 1978 as a medical equipment leasing and healthcare management consulting business. It listed on the first section of the Tokyo Stock Exchange in 2001. Mitsui became the group’s largest shareholder in 2007, building on existing business alliance. Sogo Medical, which now comprises 36 different entities, switched to a holding company structure two years ago with a view to making further acquisitions.

There are four core divisions: Sogo Medical, which is involved in operating pharmacies, developing medical malls, management consulting, wholesale pharmaceutical supplies, and equipment leasing; Health Donjinsha, an information services provider for healthcare professionals; Bunkyo, which operates restaurants, convenience stores and vending machines in hospitals; and Luft Medical Care, a recruitment agency specializing in outsourced nursing services.

One of Sogo Medical’s external directors connected Sakamoto to Polaris last September. The company was already considering its options in terms of responding to a changing commercial environment. Japan’s aging population has put increasing pressure on healthcare services, notably stretching the social security system, contributing to a shortage of doctors and nursing staff, and creating a supply-demand imbalance in the pharmacy space.

Polaris will work with Sogo Medical on initiatives such as an expansion of solutions for hospitals and the rollout of more pharmacies and medical malls. The goal is to build comprehensive community care systems that go beyond clinics and pharmacies. Medical malls are central to this effort as single locations that serve as a base for multiple service providers.

The company generated JPY144.6 billion in revenue for the 2019 financial year, up from JPY135.4 billion in 2018. Nearly three-quarters of revenue came from a network of 698 pharmacies. Over the same period, net income dropped from JPY4.24 billion to JPY3.25 billion, largely due to government-mandated reductions in drug prices and dispensing fees.

Polaris is currently raising its fifth fund, which has a target of JPY150 billion, including a JPY30 billion sidecar, having received commitments of JPY75 billion for its fourth vehicle. Last year, the firm made another investment that has Japan’s aging demographics as a key driver – buying Hitowa Holdings, a provider of residential services such as in-home nursing, from CVC Capital Partners.

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• Topics
• North Asia
• Buyouts
• Healthcare
• Support services
• Japan
• Polaris Capital