Bain makes $1b bid for Japan care services provider

The private equity firm's tender offer, which has already won board approval, is priced at JPY1,500 per share. Nichii Gakkan's stock closed at JPY1,155 on May 8, the day the bid was announced. It ended May 7 at JPY1,094, having lost about one-third of its value since the start of the year.

Bain has agreements in place to acquire 44% of the total shares outstanding, exceeding the 41.9% threshold for the tender offer to proceed. The sellers are relatives of Akihiko Terada, Nichii Gakkan's founder, chairman and CEO, who died last September. Another portion of shares will be acquired from an asset management company controlled by the family, according to a filing.

Bain has committed JPY27 billion in equity to the deal, with a further JPY98.6 billion in debt financing secured from MUFG Bank, Mizuho Bank, Sumitomo Mitsui Banking Corporation, and Nomura Capital Investment.

Established in 1968, Nichii Gakkan has 37 subsidiaries and employs approximately 95,000 people across 10,000 sites. It has six key business silos: administrative, business management and human resources support for hospitals and clinics; in-home and residential aged care services; daycare centers for children; housekeeping services for the healthcare and aged care segments; education services; and dog salons.

The company has also expanded overseas, notably in China where it offers aged care, childcare housekeeping, and education services. It also operates schools in Australia, Canada and the Philippines, while a dog salon business – under the A-Love brand – is present in Australia.

Nichii Gakkan generated JPY287.9 billion in revenue for the 12 months ended March 2019, up 1.5% year on year, while net profit rose 614.9% to JPY6.1 billion. Over half of the company's revenue came from aged care services, with medical support accounting for 37.4%. For the nine months ended December 2019, revenue and net profit were JPY223.5 billion and JPY3.4 billion, respectively.

In recent years, Nichii Gakkan has scaled back its education and China operations as core business areas came under pressure. Although demand for medical and nursing services is expected to increase as Japan's population ages, labor shortages – and the consequent need to raise wages to retain staff – are a growing burden. Moreover, the country's declining population and falling birthrate will negatively impact the childcare business.

Recognizing the need to invest in areas that can deliver future growth, the company started negotiations with Bain in January. Yuji Sugimoto, a managing director with the private equity firm, has been a board member of Nichii Gakkan since 2015.

Shortly after the bid for Nichii Gakkan was announced, Bain completed a tender offer for Showa Aircraft Industries, a Japanese manufacturer that specializes in paneling for aircraft interiors, at a valuation of JPY90 billion. The company's growth has been impeded recently by cost competition in the aircraft market and reduced demand for fossil fuel-powered vehicles. Increased sales last year were largely due to the launch of a real estate leasing operation.

"Through the redevelopment of Showa Aircraft's real estate assets, we hope to support the local economy in Akishima and meet the growing demands of the city's expanding population. We will leverage our deep operational expertise to support and grow the company's manufacturing business," David Gross-Loh, a managing director at Bain, said in a statement.

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