Hamilton Lane backs Polaris-led privatization of Japan's Sogo Medical

In February, Polaris offered to acquire all outstanding shares in Sogo Medical for JPY2,550 apiece, valuing the business at JPY76.3 billion ($694 million). It worked in conjunction with existing management – including founder and CEO Kenji Sakamoto – and had won support from shareholders representing 46.65% before the tender was launched. Mitsui & Co, the company’s largest shareholder with a 25.52% stake, was among those that agreed to sell.

The private equity firm secured 27.2 million out of the 29.9 million shares targeted, exceeding the two-thirds minimum threshold. Hamilton Lane co-underwrote the deal alongside Polaris. While this is the firm’s first such transaction in Japan, it has completed similar transactions elsewhere in Asia.

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 an 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.

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• Topics
• North Asia
• Buyouts
• Healthcare
• Japan
• Polaris Capital
• Hamilton Lane