Iwakaze’s cross-border work bearing fruit(2)

The Tokyo-based firm, led by former Ripplewood executive Kenji Ueda, has helped move two investments out of loss positions by bringing them into China.

Iwakaze Capital has linked two Japanese portfolio companies with Chinese partners, cross-border expansions that helped play a role in moving EBITDA from minus to plus, according to Kenji Ueda, CEO.

Iwakaze's two 2008 investments each underwent a “hard restructuring” and then expansion into China, he said. One is Gonzo, a Japanese studio that develops animated films, which now sells its content library in China and other Asian markets through joint ventures with local partners, Ueda said.

Gonzo's EBITDA has tripled since 2009, when it pulled out of a loss position, according to data from Iwakaze.

A second investment is AEMSS, a Japanese automotive die manufacturer, which Iwakaze brought into China in early 2012 through a joint venture with Guangzhou-based automotive wheels producer Dongling Group. The purpose was to combine high quality Japanese engineering with lowcost Chinese manufacturing. AEMSS emerged from a loss position for the full year 2012 and current year expectations are for further growth, he said.

“Chinese are reliable and they want to make money,” Ueda said. “The Japanese have strong service and technology, but Japanese companies are reluctant to go into China due to a lack of experience in offshore markets.”

The two investments are from Iwakaze Capital Fund I, which, according to the research and analytics division of Private Equity International, closed on $23 million in 2008.

Iwakaze, an SME buyout firm, halted fundraising for its second fund in 2012 due to a tough environment, PEI reported earlier.

Ueda, who used to source deals as managing director of Ripplewood Japan, also acts as an advisor to private equity firms on exclusive SME deals in Japan. In 2012, Iwakaze looked at roughly 150 deals per month in the $30 million – $50 million range, he said. 

The firm has also built a network of contacts in China to find partners for Japanese SMEs that want to expand there. 

“After the Lehman shock, we started to build up a human resource network in China and each year we've added Chinese government agencies and individuals,” Ueda said.

Iwakaze expects to resume fundraising efforts after exiting its two investments, possibly in 2014.

Japan is getting renewed interest from LPs and GPs. 

Kyung Kim, CIO of Diamond Dragon Advisors, which is raising a Japan fund targeting $400 million for CLSA Sunrise Capital Partners, said disappointment with what GPs have been doing in China and India “where many fund managers are sitting on unrealised investments“ have prompted investors to look again at Japan, where the exit market is comparatively liquid. 

On the investment side, The Longreach Group, Unison Capital and Kohlberg Kravis Roberts have this month enhanced their local teams in anticipation of activity.

Japan had 35 buyouts last year, up from 30 in 2011, according to figures from Brightrust PE Japan. Massive losses by Japan's major corporate giants are expected to help create divestment opportunities for private equity, sources said.

PEI will hold the Global Alternative Investment Forum: Japan in Tokyo on April 17 at the Mandarin Oriental. The event will bring together Japan’s most active institutional investors and global alternatives managers to explore the risks and rewards facing Japanese LPs as they diversify into alternative outbound investments.