Advantage shuffles team for succession, strategic reasons

Kita (pictured), a senior partner who joined Advantage in 2003, has been running Japan buyouts on a day-to-day basis alongside Hideo Nagatsuyu for several years. His promotion formalizes this arrangement, allowing co-founders Richard Folsom and Taisuke Sasanuma to cede some of their responsibilities, though they remain investment committee members and oversee general governance of the firm.

Meanwhile, Nagatsuyu will devote 50% of his time to the private solutions strategy, previously known as Inflexion. This involves making minority investments in public companies that don’t want to be privatized but are interested in working with Advantage based on its value creation proposals.

“This is part of our long-term transition to a sustainable institutional platform that doesn’t rely on the founders. We have put together leadership teams for each of our strategies – Japan buyout, Asia buyout and Japan private solutions. The Japan buyout leadership team has been there for some time, but we are now organizing it in a more consistent and standardized fashion,” Folsom told AVCJ.

Advantage closed its sixth Japan buyout fund in April, hitting the hard cap of JPY85 billion ($790 million). Prior to the launch in November 2018, the firm sold a minority stake in its fund management entity to Tokyo Century Corporation, a local leasing business and a longstanding LP. The move was intended to facilitate succession planning and accumulate balance sheet capital.

In 2018, the firm closed its first Asia ex-Japan fund – there is a Japan angle to most deals – at $380 million. The private solutions strategy predates it by several years. Advantage raised JPY26 billion for Inflexion I in 2009 and a successor vehicle closed on JPY11 billion last year. Emmett Thomas leads the Asia ex-Japan strategy, with Noriatsu Furukawa doing the same for private solutions.

Advantage has 28 investment professionals working on Japan buyouts and approximately 20 for Asia ex-Japan deals. There are currently about 15 in private solutions, but it is hoped the team will number 20 by year-end. It is hoped that Nagatsuyu – a senior partner who has been with the firm since 1998 – will bring more senior leadership to the team.

This channeling of resources into private solutions reflects the strategy’s growing significance. Advantage is said to be targeting up to $1 billion for the next fund, making it larger than the Japan buyout vehicle. A total of $350 million has been raised so far, including commitments from anchor LPs Development Bank of Japan and NTT Docomo.

“It speaks to the uniqueness of the market opportunity,” Folsom said. “Buyout penetration in the economy is lower than in other markets. Companies in the public space, with the right approach, are potentially more readily accessible. It might be easier to deal with mid to large-cap companies in the public space than it is to do mid- to large-cap buyouts, and our toolkit allows us to do both.”

The private solutions strategy emerged because Advantage found that for every take-private there were dozens of productive discussions with other companies that wanted to stay public. A hypothetical scenario that leverages synergies between the private solutions and buyout teams might see the former providing balance sheet support at the parent level while the latter pursues any divestments that come later.

Economic difficulties created by COVID-19 are expected to accelerate such discussions. For many companies, digitization has become more of a priority as they adapt to remote working, and Advantage is adding those capabilities to its operational offering. The alliance with NTT Docomo is expected to be helpful in this regard.

“We do see a lot of changes going forward and we want to find opportunities where we can drive that change,” Kita said. “We expect to announce a deal in a week or so – a carve-out of a non-core business from a conglomerate that didn’t receive sufficient attention from management. A lot of the transformation opportunity is around digitization.”

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