J-Star gives Three Arrows paws for thought

More accurately, owners of these pets have - according to research - transformed Japan into the world's number two pet market after the US.
Facebook and other social networking sites are playing a pivotal role in encouraging pet owners to dress up their four-legged friends, as nothing can beat a photo of Buster dressed in his own butterfly-print tank top for garnering popularity online.

Another factor is the growing popularity of smaller animals as pets. This is driven by the rapidly changing demographics and lifestyle of Japanese citizens - there's a higher proportion of elderly people to children and an increasing number of single-person households, meaning many live in small apartments in urban areas. Small pets provide a conveniently sized source of company - and are now thought to represent a market worth around JPY 400 billion ($5 billion).

Last week, Japanese private equity firm J-Star bought the company which holds the largest share of this domestic market, Tokyo-based Three Arrows. While J-Star acquired a majority stake, Création Capital Co. and a local venture capital firm picked up minority interests. The transaction represented the first for Création, which usually acts purely as a financial adviser. Having introduced J-Star to the opportunity however, it decided to participate as the majority investor would have had insufficient funds alone.

"It used to be that pet apparel and pet products were for rich people, but Three Arrows has made them more popular, so if you go to home depot types of retailers, you can find pet apparel for $15-20," says J-Star Director and President Gregory Hara. "It's a fashion item, a cover for the iPhone."

Before J-Star became involved, Three Arrows had been close to being acquired by a strategic buyer, but the latter had been deterred due to concerns over how the business would survive if its founder, Junji Itou - who had expressed a desire to retire - left the company. The firm had been managed by Itou alone since its inception in 2000 and was also experiencing a number of governance and transparency issues.

Now that J-Star has bought out the company, its remit is work with Itou to build up Three Arrow's management structure over the next 12-18 months, with a view to selling the firm to a trade buyer in around three years.

"If a strategic buyer sees this company, and there is a founder, but also a CFO, a COO and head of merchandising, then they will be more comfortable about the management risk," explains Hara. "That's how we're going to help them."

 

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• Topics
• North Asia
• Buyouts
• Consumer
• Japan
• Consumer
• buyout