Carlyle seeks up to $2.8bn for Japan fund

The private equity firm disclosed the target when briefing prospective investors ahead of the launch, according to two sources familiar with the situation. Carlyle closed Fund IV in March 2020 with commitments of JPY 258bn (USD 2.3bn, based on exchange rates at the time). This was a significant step up from Fund III, for which the firm raised JPY 119.5bn in 2015. Carlyle declined to comment on fundraising.

The fund launch coincides with some upheaval in Carlyle’s Japan leadership team. Hiroyuki Otsuka, one of two deputy heads of buyout advisory, will shortly depart to establish his own firm. Takaomi Tomioka, the other deputy head, has now been promoted to co-head alongside the incumbent, Kazuhiro Yamada.

Otsuka and Tomioka were appointed deputy heads prior to the close of Fund IV, with the former assuming responsibility for corporate carve-outs and other large-cap buyouts and the latter focusing on succession-related deals and other mid-cap buyouts. Tomioka has been at Carlyle for nearly two decades, working on investments such as Qualicaps, Sunsho Pharmaceutical, and Orion Brewery.

The firm has five other managing directors assigned to buyouts in Japan, including the recently promoted Yusuke Watanabe and Junpei Ogura.

Speaking at the recent AVCJ Private Equity & Venture Forum Japan 2023, Ogura said deal flow is the richest he has seen in his 17-year career in private equity – to the point Carlyle is unable to address all the opportunities it finds. “We are shorthanded,” he said. “There are investments we could have made in the past but now we don’t have the luxury because of the tight resources.”

He noted that Carlyle looks to create a balanced portfolio in terms of transaction type. Carve-outs and founder-succession deals have always been there, but now the firm is seeing more of what it calls strategic take-privates. “There’s no majority owner and after they are privatised, they want to set up a new strategy and enter the market again,” he said.

AVCJ Research has records of nine Carlyle investments announced since the start of 2021, including four take-private transactions, two carve-outs, and three succession or growth-oriented deals. Most recently, the private equity firm completed a tender offer for Iwasaki Electric, a lighting solutions provider that has worked on projects ranging from sports stadiums to hospitals, at a valuation of JPY 34.9bn.

There have also been three exits: construction materials supplier Senqcia Corporation was sold to Lone Star Funds; snack maker Oyatsu was offloaded to D Capital; and foreign exchange trading services player Money Square Holdings is set to be picked up by a subsidiary of electronics retailer Nojima Corporation.

Approximately USD 28bn has been committed to Japan buyouts so far this year, already exceeding the USD 19.5bn deployed across the entirety of 2022. Two-thirds of the capital has gone into two deals - Toshiba Corporation and Works Human Intelligence - but investors claim to be seeing more opportunities from a wider variety of sources.

The impending Toshiba take-private, which follows a push for reform by activist investors, is indicative of how private equity is taking aim at Japan’s large-cap corporates. More than a dozen deals of USD 1bn or more have been announced since 2020, including 11 of the country’s 15 largest PE investments on record. Of these, seven are corporate carve-outs.

Carlyle’s fourth fund is the largest ever raised for Japan. Other private equity firms are also pushing towards or past the USD 1bn threshold. Bain Capital closed its debut Japan fund on JPY 110bn (then USD 1.01bn) in 2021, while Polaris Capital Group and Advantage Partners raised JPY 150bn and JPY 130bn, respectively, for their most recent vehicles.

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