Deal focus: Mitsui makes medical inroads

Persistence has paid off for Japan's Mitsui & Co. The conglomerate, which lost out to KKR in its 2014 bid for medical device maker Panasonic Healthcare, has found a way back into the company through buying a 22% stake from its onetime rival for JPY54.1 billion ($510 million).

Groundwork for the sale, which values Panasonic Healthcare at JPY246 billion, was laid when the firms partnered earlier this year to bid for Toshiba Corp's medical equipment unit. While Canon ultimately prevailed in that deal, Mitsui was impressed enough with KKR that it wanted to pursue more partnership opportunities.

"We had built a very good, trusted relationship during the due diligence process," says Eiji Yatagawa, a member of KKR's private equity team in Japan who sits on the Panasonic Healthcare board. "Mitsui liked our approach to working with them and also our post-investment value-creation capabilities. As Mitsui has been strengthening its interest in healthcare, it had an in Panasonic Healthcare. Right after the Toshiba deal ended, they came to us and expressed an interest in this company."

KKR, which will continue to hold a 58% stake in the company (Panasonic, the former parent, retained a 20% stake in the 2014 acquisition) was keen to do the deal as well. The GP saw Mitsui as a growing power in the healthcare industry thanks to its global network of medical assets.

Mitsui's plans for a regional diabetes treatment network were particularly enticing for KKR and Panasonic Healthcare, a global leader in the manufacture of blood glucose monitors and other sensors. The company believes the patients served by Mitsui's hospital and clinic subsidiaries, including Columbia Asia Group in Southeast Asia and DaVita Kidney Care in the US, could be a huge captive market for its products. The backing of a company directly involved in the healthcare space can also lend credibility to Panasonic Healthcare among future investors.

"Having a long-term strategic investor in Panasonic Healthcare can pave the way for an exit in the future, such as a possible IPO," Yatagawa notes. "Mitsui as a long-term partner provides Panasonic Healthcare with additional stability and will be a great resource for the company in the futre, and as an anchor it reduces concerns on possible overhang issues in KKR's eventual exit."

While KKR expects Panasonic Healthcare to benefit from the experience and advice of Mitsui, it also plans to maintain its own leadership role. The firm sees the bolt-on acquisition of Bayer's diabetes care business last year for EUR1.02 billion ($1.15 billion) as an example of how PE investors can be a significant source of value creation in Japan.

"People had talked about a transformational bolt-on acquisition on a global scale without really putting it into practice, which we did," says Yatagawa. "So that clearly changed the perception of private equity, and particularly KKR, in this market."

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

• Topics
• North Asia
• Healthcare
• Expansion
• Trade sale
• Japan
• KKR
• Exit
• Growth capital