J-Star's Kugami deal fits the mold

The PE firm was one of several investors to approach Kugami when its septuagenarian founder - Yasutaro Shimizu - needed to exit the business, but was without an heir apparent. J-Star's ability to speed up the decision-making process and bring in a robust business plan and CEO to implement it, helped the firm land exclusivity and negotiate the deal before it could go to auction. 

The circumstances were a vast improvement on another potential deal. According sources familiar with the matter, months earlier J-Star had been among early bidders for another Japanese plastic auto parts manufacturer, Sol-Plus Group. In that case, there was no exclusivity and The Longreach Group prevailed via a limited auction process.

J-Star is understood to have bought Kugami for around $30 million, with a relatively low valuation of 5x EBITDA.

"With the capital market recovery in Japan, expectations among entrepreneurs have grown, but Kugami was less concerned about a high valuation," explains Satoru Arakawa, a partner at J-Star. "His expectations were primarily based on finding the right person to succeed the business, so we didn't need to rely on our financial power but on the solutions we could provide."

Kugami produces plastic panels needed to house car stereo and satellite navigation systems, counting the likes of Sony, Panasonic, Kenwood, Hyundai and LG among its clients. One area in which J-Star will provide support is in the firm's expansion overseas. Founded in 1965, Kugami already has a pan-regional presence.

In addition to factories in Nigata and Yokohama, it has been manufacturing in China since 1993 with facilities in Zhuhai, Suzhou, Dalian and Tianjin, as well as a trading center in Hong Kong.

The plan is to strengthen its operations in China and extend production to Southeast Asia and Latin America. The business will also make new additions to its management and seek M&A opportunities overseas. Arakawa explains that Japanese conglomerates operating overseas still want access to local original equipment manufacturers like Kugami.

"Many of our target companies operating overseas have been suppliers to large companies and there is still an opportunity to expand," he says. "There still tends to huge gap in terms of quality between local suppliers and Japanese suppliers operating overseas, so an early-mover like Kugami has an advantage."

The investment was made via J-Star No. 2, a JPY20.4billion ($205 million) fund, which reached a final close in July year. It is J-Star's third investment from the fund and the second in this particular segment. In July, it invested JPY1-2 billion in auto parts firm Tokai Trim alongside the Supply Chain Support Fund, a vehicle backed by the Japan Auto Parts Industries Association and Development Bank of Japan.

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• Topics
• Buyouts
• North Asia
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• Japan
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• manufacturing
• buyout