DRC Capital eyes over $400m for Japan fund – Exclusive

The Tokyo-based small-cap firm is planning a new fundraise having closed prior funds on around $100m.

Tokyo-based small-cap private equity firm DRC Capital is preparing to launch a new fund almost five times larger than its predecessor fund, Private Equity International has learned.

The Japan turnaround specialist is seeking to raise ¥50 billion ($440 million; €415 million), for its latest vehicle to provide equity and operational solutions for business succession problems as well as the inheritance-tax burden issue of family-run companies, a source with knowledge of the matter said.

DRC plans to launch the fund in the next quarter and expects to have an initial closing by summer this year.

The source added that DRC is planning “quite a jump in the new fund size because it sees a lot of deal opportunities in the business succession space and as such would require more dry powder”.

Japanese Limited Partnership DRC IV will also have a longer investment period than DRC’s previous funds, which typically lasted for around six years after initial investment. The firm has designed a longer hold period in order “to mitigate concerns of seller-owners about the possibility of reselling their companies to unfavourable parties which may include rival companies in the industry”, the source said.

DRC Capital expects commitments mainly from Japanese regional banks and also international investors. And in line with Japanese regional banks’ drive to get more experience and invest more in private equity, the firm will also accept seconded staff from regional banks for their “training purposes”.

DRC Capital has over $500 million under management; the firm’s funds have delivered an average gross IRR of between 20 percent to 30 percent without using debt.

Among its recent investments include jewellery company Chan Luu and backpack company Seiban. In April last year, the firm sold its stake in payment services company PayDesign to fintech company Metaps for ¥2.5 billion, generating a gross money multiple of 3.4x and gross internal rate of return of 29 percent.

DRC Capital declined to comment on fundraising.