Japan's J-Star closes fifth fund on $574m
Japanese lower middle-market private equity firm J-Star has closed its fifth flagship fund at the hard cap of JPY 75bn (USD 574m). The target was JPY 65m.
J-Star described the fundraise as its fastest to date, with the vehicle having spent about six months in the market. LPs include public and corporate pension plans, insurance companies, endowments and foundations, asset managers, funds-of-funds, banks, consultants, and family offices, with a higher proportion coming from outside Japan.
Fund IV closed on JPY 48.5bn after seven months in 2019, beating a target of JPY 42.5bn. About 60% of the capital came from international investors. Fund III closed on JPY 32.5 bn in 2017, while Funds I and II raised JPY 12bn in 2006 and JPY 20.4 bn in 2013, respectively.
The latest vintage will continue a strategy of taking control stakes in small to mid-cap Japanese companies that have established brand power, unique business models or leading positions in their markets. The idea is to provide capital for creative solutions and non-distressed special situations, including succession, management buyouts, carve-out, and shareholder exit scenarios.
Succession-driven M&A has historically accounted for the bulk of deal flow. Preferred areas include media, retail, healthcare, IT services, and manufacturing businesses in niche domains with high technical capabilities with entry barriers. There has been a shift in the past decade from light industrial to service-oriented plays.
Cheque sizes typically fall in a range of JPY1-3 billion. J-Star told AVCJ in 2019 that it reviewed about 100 deal opportunities a year, taking face-to-face meetings with owners or management of 50.
Industry consolidation is a significant theme, as demonstrated by nursing care platform Japan Hospice Holdings. Several businesses were bolted on, including Kairos, Nurse Call, Live Cross, Katsura Shoji, Luminous, and Platia, the last of which was exited last month to Bain Capital-owned counterpart Nichii Gakkan.
Recent exits also include the sale of a 20% stake in Aki-Japanc, a construction industry employee training service provider. Last year, J-Star confirmed three liquidity events in the space of a week involving power services provider ESCO, healthcare coverage specialist NHS Insurance, and fire safety equipment supplier Yokoi Manufacturing.
J-Star was founded in 2006 by CEO Gregory Hara, managing partners Kenichi Harada and Hideaki Sakurai, and partner Tatsuya Yumoto as a spinout of the small-cap buyout program at Japanese VC firm Jafco.
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