Japan firms see a challenging fundraising year ahead

As the Tokyo-based Advantage Partners continues to seek commitments for its pan-Asian and fifth Japan buyout funds, co-founder Taisuke Sasanuma sees a challenging fundraising year ahead for firms but plenty of buyout deals.

Japanese private equity firm Advantage Partners co-founder Taisuke Sasanuma told Private Equity International that 2016 would be a year when more money will be allocated to alternative asset classes in Japan, and smaller funds who have just launched might be in the market for some time.

The firm is still seeking commitments for its Advantage Partners Asia Fund and its fifth Japan buyout fund Advantage Partners V, PEI has learned. 

Advantage Partners Asia Fund was launched in June 2015 with a target of $400 million. It will focus on investment opportunities in Asia, excluding Japan, according to PEI’s Research and Analytics division. The firm first revealed plans for another Japan-focused buyout fund in June 2015.

Tokio Marine Capital, which has previously raised four buyout funds in Japan is also seeking commitments from investors for its fifth fund which targets JPY 60 billion ($496 million; €455 million). 

CLSA Capital Partners, which took about two years to raise its second Japan buyout fund, will most likely launch another fund later this year, a source familiar with the situation told PEI. Similarly, mid-market firm J-STAR, which is still deploying capital from its 2012 fundraise, might launch its third fund in the summer, another source said.

In terms of deals, Sasanuma said 2016 is starting to be another growth year for private equity in Japan, with both the variety and number of deals expected to increase. He pointed out that a major catalyst to stronger mergers and acquisitions activity is that businesses are now stripping back to their core interests.

“Japan’s big enterprises are now becoming more proactive in restructuring their business portfolio in order to respond to requests from global investors that say, ‘You Japanese companies could pay a little bit more attention to shareholders’ value or return equity.’ Up until now Japanese management have been pursuing sales growth, but this is the year that they have to change tactics and optimise business mix, rather than expand their visions and grow the size of their companies.”

“What they have to do is totally renew their portfolio. Even though some divisions or subsidiaries are making money [but if those categories are non-core], they have to be divested,” Sasanuma said.

“Private equity firms like us are waiting – we have great capacity and capability to receive those divested companies / subsidiaries and really help them grow.”

According to Bain & Company’s 2015 private equity report for Japan, making new acquisitions will remain the number one priority of firms and they believe sellers are warming to the private equity value proposition. 

Deal activity in 2015 saw a string of diverse acquisitions in Japan. Advantage Partners acquired funeral service provider Epoch, precision instrument manufacturer Kyosei, popcorn company Japan popcorn and dental service provider Hukuba.