Longreach acquires Japan IT company via bolt-on
The Longreach Group has acquired Japanese IT services provider Blueship as a bolt-on for Japan Systems, an existing portfolio company in the space.
Financial terms were not disclosed. The acquisition is being enabled by follow-on capital from Longreach’s third North Asia-focused mid-market buyout fund, which closed on USD 650m in 2019. The fund typically pursues deals in the range of USD 50m to USD 250m.
Longreach acquired 100% of Japan Systems in 2021, delisting the company from JASDAQ and the Tokyo Stock Exchange at a valuation of around JPY 15.4bn (USD 116m). The GP has since supported a management buildout and a diversification of services aimed at widening the client base. This included moves into accounting software and corporate digital transformation.
The Blueship acquisition is part of this agenda. The combined group aims to expand and deepen its capabilities to deliver digital transformation services to its customer base and achieve business synergies, according to a statement.
Founded in 1969, Japan Systems claims expertise in public sector companies, recruiting, and education, as well as IT services for sectors such as banking, telecommunications, energy, and insurance. Blueship, which has grown to around JPY 1.6 billion in annual revenue since its establishment in 2004, will bring a specialisation in supporting software-as-a-service companies.
Longreach described the investment as reflecting its focus on technology sector business with potential to grow profitability through bolt-ons and platform building acquisitions. It also flagged Blueship’s strengths in modernising working environments through reduced paper usage and environmental, social, and governance (ESG) value creation.
Corporate digitalisation has become a prominent theme in Japan given the country is ranked relatively low in these competencies globally. Only 9% of Japanese retail is online (versus 24% in China); digital talent represents 1% of the workforce (3% in the US); and penetration of mobile banking is 6.9% (35.2% in China).
The largest digitalisation driver in Japan is arguably a severe labour shortage that is on track to worsen. About 50% of Japanese companies said they are having difficulty finding suitable staff, according to Teikoku Databank. Japan’s unemployment rate, in freefall for a decade, stands at around 2.5%.
“This labour shortage issue is really serious. The time to digitalise is now because Japan is lagging the real wage growth that it could be having reflecting that shortage. I’m not sure we can underwrite to that for much longer,” Mark Chiba, chairman and partner at Longreach told the AVCJ Private Equity & Venture Forum last November.
“When you look at Japanese labour costs, particularly on a US dollar basis, they’re very low. There should be a significant movement in labour costs at some point, and we need to build efficient digitalisation platforms now to make sure that our margins are going to be in place when those costs come through.”
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