Bain acquires Skylark in $2.1bn blockbuster Japan deal

Bain is set to buy Japanese restaurant chain Skylark in the country’s biggest buyout for two years. CVC Asia Pacific in 2009 reportedly gave up its stake in Skylark so as not to have to repay debt related to the 2006 MBO it led for the same company.

Bain Capital’s $2.1 billion acquisition of restaurant chain Skylark will be the largest buyout deal in Japan in two years, according to a statement from the firm. Nomura Principal Finance, the private equity arm of the Japanese bank, will sell its 40 percent stake in the business, the largest of all shareholders, marking its third exit this year.
 
The deal is of significant size for Japan, which has also recently offered a relatively subdued market. From 1998 to 2010, 78 percent of Japanese buyouts recorded deal sizes of less than $125 million, according to Brightrust PE Japan, a Tokyo-based private equity investment advisory and fund management services firm. Only 2 percent of the deals are more than $1.25 billion.
 
Skylark, a family restaurant chain with 3600 outlets across and outside Japan, also set a record for buyouts in 2006 when it was purchased by CVC Asia Pacific and Nomura in a transaction valuing the business at $3 billion. In 2009, CVC reportedly handed over its remaining stake in the company to Chuo Mitsui Capital, a private equity fund owned by Chuo Mitsui Holdings, in return for being absolved from having to repay loans taken out to finance the purchase of its stake.

The business has annual revenues of approximately $4.5 billion. It hopes to grow further and implement new product development, according to the release.
 
David Gross-Loh, managing director at Bain Capital said in a statement: “We believe there are opportunities for Skylark to expand its customer base and drive growth with a focus on innovative menu development, new offerings, and new marketing approaches.”
 
Bain has had experience in the food and restaurant sector, acquiring fast food chain Domino’s Pizza’s Japanese operations last year for a reported  $67 million. The firm also bought fast food chain Burger King’s US operations in 2003 with private equity firm TPG and investment bank Goldman Sachs in a deal worth $1.5 billion. 
 
Bain has been active in Japan for years, opening a Tokyo office in 2006 that currently holds 28 members of staff. The firm will continue investing in the region as it is raising a new $2 billion Asia-focused fund. Earlier this year PEI reported the firm was “seriously considering” offering investors a choice between lower management fees or lower carried interest on the fund. 
 
The choice would be between paying a 2 percent management fee with 20 percent carry and 1 percent management fee with 30 percent carry. Bain has traditionally received a 2 percent management fee and 30 percent carry for its funds.
 
Bain could not be reached for comment.
 
The fundraising is progressing despite allegations of fraud concerning accounting irregularities at one of the firm’s Asian portfolio companies, reported by the Financial Times last week. In April 2010 Bain invested $61 million in Indian children’s clothing business Lilliput Kidswear, alongside a $26 million investment from TPG. 
 
The two firms have now stepped down from the Lilliput board following the allegations of wrong-doing. The firms have a court order preventing them from speaking about the matter.