Fund focus: LPs renew Carlyle’s Japan mandate

Of the 24 disclosed private equity buyouts of $50 million or more announced in Japan since the start of 2014, about half are corporate divestments, according to AVCJ Research. The Carlyle Group is responsible for two of them.

The first came in July 2014 when the private equity firm launched a tender offer for SBI Mortgage at a valuation of approximately JPY43.2 billion ($423 million). The bank, previously controlled by SBI Group, was subsequently renamed Aruhi Corporation. The second divestment deal also came by way of a tender offer as Carlyle bid JPY29.3 billion for Hitachi Metals Techno, a second-tier subsidiary of Hitachi.

"Corporate divestment deals - like Aruhi and Hitachi - are typically driven by companies deciding to focus on their core businesses," says Tamotsu Adachi, managing director and co-Head of Carlyle Japan. "We expect to see the trend of these deals go on as next generation becomes top management at large Japanese companies."

As such, these transactions are likely to be a mainstay of Carlyle's third Japan fund, which recently closed at JPY119.5 billion ($1 billion), exceeding the JPY100 billion target. The vehicle launched in 2013 and has received capital commitments from domestic and international investors, including the likes of the Teachers' Retirement System of the State of Illinois.

Fund III is smaller than its predecessor, for which Carlyle raised JPY215 billion in 2006, only to downsize it to JPY165.6 billion due to weaker-than-expected deal flow. The new fund places Carlyle firmly toward the upper end of the middle market. Except for policy-related vehicles, AVCJ Research shows only a handful of funds launched since 2010 that are even half the size of Carlyle Japan Partners III.

The firm is also positioning itself to capitalize on the stream of succession planning deals in Japan whereby private equity presents itself to ageing founders with no one to whom they can leave their businesses. These situations account for the other two of the four deals currently in Carlyle's new fund.

In May of last year, the GP acquired a controlling stake in Oyatsu Company, the maker of Baby-Star ramen snacks, founded in 1959. This was followed by the purchase of Sunsho Pharmaceutical, a leading domestic producer of soft capsules and seamless capsules for the health and nutrition pharmaceuticals industry.

In the case of Oyatsu, there was also a cross-border aspect, with the company planning its first overseas manufacturing base in Asia. Outbound expansion has been part of almost half of Carlyle's 20 private equity investments in Japan, and Adachi sees this continuing.

"Japanese companies and entrepreneurs are getting more open to foreign investment in Japan and foreign investors that offer management and operation expertise," he says. "They would like to leverage the support and expertise of global private equity firms to grow their business in local market and expand abroad."

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• Topics
• Fundraising
• North Asia
• Buyout
• Japan
• The Carlyle Group
• buyout
• Fundraising