Bain sweetens offer for Japan's Nichii Gakkan

The private equity firm won board support in May for a tender offer of JPY1,500 per share. It now stands at JPY1,650 per share, according to a filing, which represents a 52.6% premium to the May 7 closing price. As of late morning trading in August 3, Nichii Gakkan was up 8.3% at JPY1,669. When Bain tabled its initial bid, the stock had lost about one-third of its value since the start of the year.

However, hedge fund manager Lim Advisors is refusing to tender its shares, claiming the revised offer is still too low. It believes JPY2,400 per share represents fair value. The hedge fund argues that certain investors are being granted preferential terms in return for reinvesting in Nichii Gakkan post-privatization. It is also troubled by the absence of a provision requiring support from a majority of independent minority shareholders for the deal to proceed.

Bain is targeting up to 16.3 million shares – an equity interest of 24.76% - through the tender, and it has pushed out the acceptance deadline to August 17. Agreements are already in place to acquire 44% of the total shares outstanding. The sellers include relatives of Akihiko Terada, Nichii Gakkan’s founder, chairman and CEO, who died last September, and an asset management company controlled by the family.

The private equity firm 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 JPY297.9 billion in revenue for the 12 months ended March 2020, up 3.5% year-on-year, while net profit declined by 33.6% to JPY4.1 billion. For the nine months ended December 2019, revenue and net profit were JPY223.5 billion and JPY3.4 billion, respectively. Aged care accounted for 51% of revenue and medical support contributing 38%.

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.

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