Japanese GPs maintain strong investment pace - AVCJ Forum

"Japan's PE market has been very active despite the COVID pandemic," said Hironobu Nakano, chairman at Trustar Capital Partners Japan. He is especially optimistic about carve-outs, noting that local companies “are unremittingly reviewing their business portfolios. This trend has completely taken root.”

Representatives from Unison Capital and Advantage Partners said their investment pace has remained the same in recent years. Shinichiro Kita, a representative director and senior partner at Advantage, said his firm had backed five companies in the past 12 months, which is close to the maximum it can handle with the current team.

Makoto Iwami, a director at NSSK, added that his firm has made more than 20 investments over the past three years. Four in five deals involved succession planning. Jun Tsusaka, NSSK’s CEO, recently told AVCJ that he had deployed USD 2.5bn in the past 12 months. This includes the JPY 100bn (USD 695m) acquisition of distressed pharma player Kraft, NSSK’s largest-ever deal.

Approximately 120 buyouts were announced in Japan last year, the vast majority falling in the mid-cap space, according to AVCJ Research. The annual average for the prior eight years is 72. The running total for 2023 was 40 as of mid-June.

Multiple reasons were given for the strong deal flow, including founders becoming more receptive to approaches from private equity and limited competition for assets in the mid-cap space.

“The number of potential targets we have mulled to buy has been increasing since before the COVID-19 pandemic. We are thinking to hire more professionals to handle those cases,” said Yuki Kashiyama, a partner at J-Star.

"One recent trend we’ve witnessed is that younger CEOs seek a private equity partner to achieve further growth, adding to a conventional succession angle that elderly founders seek his or her successors."

Financing is also available on relatively attractive terms. “In our case, we can get financing for 5x-6x [of EBITDA] at an interest rate of 2.5%. There shouldn’t be such a market outside of Japan,” said Masamichi Yoshizawa, a representative director and partner at The Longreach Group.

Even at the larger end of the spectrum, private equity firms claim to be struggling to address opportunities presented to them. “We are shorthanded,” said Junpei Ogura, a managing director at The Carlyle Group. “There are investments we could have made in the past but now we don’t have the luxury because of the tight resources.”

Investors are seeing larger deals as well. Eiji Yatagawa, a partner at KKR, noted that carve-outs in Japan have been increasing in size since 2014-2015, mainly due to the government pushing for corporate governance reforms. Eight years ago, transactions tended to be in the JPY 100bn-JPY 200bn range; now they are JPY 500bn-JPY 600bn and sometimes reach JPY 1trn, Yatagawa said.

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• Topics
• North Asia
• Buyouts
• Japan
• AVCJ Events
• Advantage Partners
• NSSK
• Trustar Capital
• J-Star
• Unison Capital
• The Carlyle Group
• KKR
• The Longreach Group Limited