J-Star in hospice care double deal

The Japanese mid-market GP was one of a number of bidders for a home nursing care provider but lost out to a domestic strategic investor. However, J-Star built a rapport with Tadashi Takahashi, the company's CEO, who liked what it was proposing.

It wasn't long before Takashashi and his team, unhappy under the new owner, left to set up a new business. Kairos offers home nursing services in the Kanagawa region from two nursing care stations and also runs a hospice facility that looks after patients with later stage cancer and intractable diseases such as ALS. The business model is based on that of Nurse Call, which runs two nursing care stations in Nagoya. This company was set up by Toyomi Yoshida in 2002, and she faced succession-planning issues.

J-Star suggested Yoshida consolidate the two companies and invite Takahashi to serve as CEO of an expanded Nurse Call.

"Yoshida is something of a legend in the industry and a mentor to Takahashi," says Tatsuya Yumoto, a partner with J-Star. "She told Takahashi that she would consider selling her business to him, but he needed the capital so he came to J-Star for support."

As a result, J-Star has acquired both companies - with Takahashi retaining a single digit stake in the business and acting CEO of both companies, which will eventually be combined. The financial details of the transaction were not disclosed, but J-Star typically invests $5-10 million per transaction.

The private equity firm is tapping into a well-established demographic play in the country: an aging and declining population's rising demand for healthcare services. "Last year 1.3 million people died in Japan; next year it will increase to $1.7 million," says Yumoto. "Of those people, 80% die in hospital. The issue is most people would prefer die at home, but with the proper care."

J-Star is also banking on a change in social welfare policy. By shifting more resources to supporting home care services for those with long term illnesses, the government hopes to alleviate pressure on the country's over-stretched in-patient hospital services. "Hospitals are really the evil in the system because they can be a high-cost and an ineffective solution for these patients," says Yumoto. "The government wants more of these patients in more cost effective private sector home care."

While policy can sometimes be unpredictable, Yumoto stresses the tide is moving in favor of companies like Nurse Call and Kairos. The only significant risk is the labor shortage in Japan, but J-Star is confident of securing the required talent.

The private equity firm has reason for optimism in healthcare. This month it exited in-home care services provider HCM Corporation via a trade sale to Alshok Group, generating an 8x money multiple.

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• Topics
• Buyouts
• North Asia
• Healthcare
• buyout
• Japan
• healthcare
• J-Star