Execution issues

It will be accompanied by a spin-out of the company's television arm and 5,000 job cuts as Sony finally heeds calls to streamline operations. The restructuring effort, driven by a desire to double down on smart phones, gaming and imaging, is expected to cost JPY90 billion over two years.

This is JIP's second carve-out in a matter of weeks, following the acquisition of Biglobe, Japan's fourth-largest internet service provider, from NEC.

In the last fortnight we have also seen Panasonic sell off its chip assembly plants in Southeast Asia to Singapore-based UTAC Holdings, which is owned by Affinity Equity Partners and TPG Capital. It is the latest in a string of sales by the conglomerate, with KKR picking up a majority stake in Panasonic Healthcare and Advantage Partners acquiring the Sanyo Electric digital camera business.

The deal flow feels palpable because these are generally big ticket transactions and in previous years the Japan divestment juggernaut, while much discussed, was always one step short of finding its stride. Restructuring was a compelling story, but it remained just that, as the investors who repeatedly lobbied for action at Sony can attest.

Nevertheless, some private equity investors still feel shortchanged. Speaking at an industry event last month, Richard Folsom, representative partner at Advantage Partners, said the transactions that have been agreed represent barely a scratching of the surface, given the hundreds if not thousands of electronics conglomerates operating in Japan.

Abenomics - the series of economic reforms introduced by Prime Minister Shinzo Abe - is in this sense a double-edged sword. We have yet to discover whether the third of the three policies in Abe's portfolio - structural measures - will bring about a wider, government-driven corporate restructuring.

In the meantime, as Folsom noted, the monetary and fiscal stimuli that comprise policies one and two have contrived to weaken the yen and thereby ease the pressure on Japan's export-oriented electronics giants. Divestments are being delayed.

The other consideration is that these transactions are, quite simply, hard to transact. Buying an asset requires the patience of Job, the political intuition of Machiavelli and networks that extend deep into the internal and external apparatus that decides whether a deal will actually go through. A retired executive board member might be just as influential as the CEO.

A potential restructuring led by a foreign private equity firm is almost certain to set off alarm bells: for many, the asset class is still synonymous with job cuts. Historical studies show that Japanese-led restructurings lead to at worst modest declines in employee numbers.

In this context, a takeover bid that doesn't enjoy widespread stakeholder support starts with a massive disadvantage. The financial sector bailouts of the early 2000s were considered a necessity because balance sheets were in a mess. Contrast that with the situation at Seibu. The railway and resort business may have been distressed when the US private equity firm bought a minority stake in 2005, but board and management were in no mood to be pushed around as Cerberus Capital Management sought to impose its will last year.

It is not the only example of a foreign PE deal turned sour.

We are left with a collection of maybes. Maybe the structural measures in Abenomics will deliver. Maybe Japanese management teams are coming around to the benefits that private equity investment can bring. Maybe the recent divestments signal a change of attitude in corporate circles, leading to a swath of non-core assets being put up for sale.

In the meantime, know your target. Prepare an investment proposal that illustrates what you can bring in addition to capital yet doesn't risk alienating executives whose support will be vital in implementing it. Find a partner, where appropriate, either a local player with on the ground knowledge or a foreign player with proven expertise. And, above all, be patient.

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• Topics
• North Asia
• Buyouts
• buyout
• Japan