Japan secondary buyouts: Hand to hand

Permira’s acquisition of sushi chain Akindo Sushiro in 2012 came during a period of unprecedented activity for Japanese secondary buyouts. Between 2011 and 2013, more than 60 assets were passed from one financial sponsor to another, double the total for the preceding three years and 50% more than in the three years that followed.

A number of these were deals of necessity as PE firms rid themselves of investments accumulated ahead of the global financial crisis – typically with a return inferior to what they had anticipated on entry. Transactions involving Skylark, Tsubaki Nakashima, Asahi Tec Corp, and Tokyo Star Bank all fit this profile to varying degrees. Announced in 2011, they took the amount transacted through secondary buyouts to $3.2 billion, a level not seen since before the crisis when GPs were in feverish acquisition mode.

Akindo Sushiro was a bit different. This was a business that Unison Capital acquired between 2007 and 2008 for around JPY18 billion ($159 million), culminating in a de-listing. The GP claimed to have increased store numbers, sales and EBITDA by 50%, 75% and 150%, respectively, during the holding period. For the year ended September 2011, sales reached JPY99.8 billion, compared to JPY59 billion in 2007. Permira bought the asset for $1 billion, delivering an 8x return for Unison.

Five months later, a similar deal was announced in which Advantage Partners sold Komeda Coffee to MBK Partners. The local private equity firm took a majority stake in Komeda in 2008 when the company had around 300 outlets. Over the next four years nearly 200 new stores were rolled out and revenue more than doubled. MBK paid around $480 million and Advantage made seven times its money.

These were arguably rich valuations but in the last three months they have proved justified. MBK, having taken Komeda Holdings to 747 outlets, listed the business last year and completed its exit in June, with a 5x return. Sushiro Global Holdings went public earlier this year, with Permira making a partial exit. The parent company of Genki Sushi agreed last week to buy the firm’s remaining stake, which will generate a gross multiple of 2.9x for Permira. Sushiro grew from 335 to 470 restaurants during the holding period.

Both are examples of secondary sales from country-specific to pan-regional or global GPs, driven by the need to exit but also to some extent by a recognition that the original owner has taken the business as far as resources and mandate permit. The companies were primed for further growth and the new owners have managed to realize it, or at least achieve public market valuations that reflect the potential to realize more of it.

Not all secondary transactions of this nature will deliver happy results for everyone concerned. But they are likely to become a more permanent part of the private equity landscape (and not just in Japan) as the industry matures, as local GP communities deepen, and – yes – as pan-regional firms raise ever larger funds.

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• Topics
• North Asia
• Trade sale
• GPs
• Japan
• Secondaries
• MBK Partners
• Permira Advisers
• Exit