Carlyle turns to care for Japanese cashflow

Carlyle tapped into some fertile growth areas when it bought Tokyo-based medical outsourcing and long-term elderly care provider Solasto

When The Carlyle Group’s Japan buyout team completed the take-private of Tokyo-listed Solasto Corporation in February 2012, it tapped into two rich seams of investment potential in Japan – the opportunity to deliver improved healthcare services and rising demand for elderly care.

The Tokyo-based company, founded in 1965 and formerly known as Nihon Iryojimu Center Corporation, had its origins in healthcare support services, including being the first in Japan to offer medical administration distance learning and contract services, notably medical billing.

By the time Carlyle Japan Partners II invested in November 2011 through a management buyout reportedly valued at $149 million, the business had evolved to provide medical support consulting services. It had also developed a long-term elderly care business encompassing home help and day-care centres, as well as established a childcare division in the Tokyo metropolitan area.

“Solasto was already generating stable cashflow but it wasn’t growing,” says Kazuhiro Yamada, head of the Carlyle Japan buyout advisory team. Following a review of the company’s core medical administration outsourcing business and the management team, the firm embarked on streamlining the organisation with an eye to accruing market share from the leading player in its segment, he says.

The strategic focus was not simply on cost-cutting but on how to grow revenue, Yamada says. To assist, the GP brought in consultants to advise it on areas including how to attract customers from its main competitors.

“We spent the most time focusing on how we could grow a long-term care business. That is an expanding industry in Japan. We are an ageing society and there is a strong market need,” Yamada notes.


People would prove key to growth. “We brought in a lot of talent from outside,” says Yamada, noting that current chief executive Yasuhiko Ishikawa was recruited from medical equipment importer Stryker Japan.

The business hired other key positions including a new chief financial officer, a head of medical outsourcing and head of elderly care, sourcing talent from other large corporates including Burger King Japan and McDonald’s. New board members included the former chief executive of Janssen Pharmaceutical and former senior executive officer of another Tokyo-based pharmaceutical business Daiichi Sankyo Company.


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At its childcare unit, the company appointed its first dedicated senior executive. “We didn’t have a specific person [in charge of childcare before],” says Takaomi Tomioka, a Tokyo-based managing director at Carlyle. “There was only one senior manager overseeing elderly and childcare. We then put in a designated leader and she has made the business profitable,” he says.

Tomioka credits raising staff salaries to the highest compensation nationally as a major factor in improving staff retention and establishing a stable team that allowed the unit to look after more children.


In line with a central pillar of the business’s mid-term growth strategy to expand the long-term elderly care division, in 2014 Solasto acquired Tokyo-based Cocoticare. The business provided elderly care and nursing support through its residential, group and urban care homes. The transaction was a turning point.

“It was [Solasto’s] most sizeable and meaningful acquisition during our investment period,” says Tomioka. Cocoticare offered a broader range of services, including residential care for Alzheimer’s sufferers in “group homes” where small numbers of elderly people live together.

In Japan, pursuing a buy-and-build strategy is becoming more common, particularly in the small and medium-sized business segment, says Yamada. Add-ons “are not that easy to source but not too hard either, especially small businesses,” he says, noting these companies need to prepare for the future in order to survive into the next decade. “There are lots of families that would like to exit their ownership,” he adds.


Relationships proved key to productivity, including between Solasto’s business divisions. The elderly care business focused on three metropolitan areas with growing elderly populations: Tokyo, Nagoya and Osaka. “At Kansai [regional office], the outsourcing and long-term care businesses are in the same building and able to support each other,” says Tomioka.

Collaboration was mutually beneficial with many of the long-term care customers requiring hospital care and hospitals proving a source of clients, says Tomioka. “Local relationships with hospitals and clinics were critical to maintain high service standards,” he notes.

At the end of March 2017, the long-term care business operated almost 250 centres with 3,500 staff members serving about 15,000 clients. Operational initiatives introduced across the division included the introduction of facility-by-facility profitability monitoring that helped revenues double over the period of Carlyle’s ownership.


Solasto Career Centre was established in 2014 to strengthen its training capabilities. Tomioka notes that training and knowledge sharing served to sustain the quality of services at the outsourcing and long-term care businesses, as well as improve employee satisfaction and staff retention.

Two years later, the business took another step toward boosting operations with the launch of its ICT Business Development Centre. Tasked with developing software to assist its staff undertake duties such as billing and health insurance reimbursement applications, it has allowed the company to reduce the number of staff deployed onsite. 


By the time Carlyle was ready to exit part of its stake to strategic investors, it had grouped the company’s many different services under a single Solasto brand. In December 2015 the firm sold a 45.5 percent stake in the business to three investors: Daito Trust Construction, listed pharmaceutical company Toho Holdings and IT specialists Infocom Corporation. The result was not only an increase in enterprise value, but also strengthened strategic relationships.


In June 2016, the business re-listed on the Tokyo Stock Exchange and Carlyle sold down most of its remaining stake in the initial public offering. “We enhanced this business organically and also through M&A and expanded it rapidly. After that it demonstrated growing revenue and profit,” says Yamada.

At the end of March 2017, Solasto generated consolidated revenues of ¥65.4 billion ($613 million; €498 million) up from ¥56.4 billion in 2012. EBITDA had more than doubled from ¥1.8 billion to ¥4.2bn from the end of March 2012 to 2017, with margins of 3.2 percent expanding to 6.4 percent. The firm had fully exited by the end of May 2017. The multiple was not disclosed. n