Longreach buys insolvent Japanese IT solutions provider

The Longreach Group, a largely Japan-focused private equity firm, has invested $118 million for a control stake in an insolvent Japanese IT company that is listed on the Tokyo Stock Exchange.

The Longreach Group, a private equity firm that operates from Tokyo and Hong Kong, will invest ¥13.5 billion (€86.8 million; $118 million) for a 67 percent stake in NIWS, a Japan-listed provider of IT integration services.

Longreach will finance the deal with 100 percent equity from its $750 million fund, a spokeswoman told PEO. The buyout firm was selected as the preferred bidder, along with Phoenix Capital, following an auction run by Japanese investment bank Daiwa Securities SMBC.

NIWS, which was founded in 1992 as a joint venture between IBM Japan and Nomura Research Institute, recorded an operating loss and became insolvent for the fiscal year to June 2007 after rapid expansion efforts failed. This created losses on software assets and costs that resulted from its withdrawal from certain businesses, according to a statement.

However the core business of the company, which listed on the Tokyo Stock Exchange in 2002, is still providing a stable cash flow, according to a Longreach spokeswoman.

Longreach will subscribe to ¥6.5 billion of common shares and ¥7 billion of preferred shares. Phoenix, a Japanese distressed fund investor, will also invest in ¥6.5 billion of preferred shares. The investment is subject to shareholder approval at an extraordinary general meeting to be held in late October.

All of the NIWS board members are to step down and a new head will join from Nomura Research Institute. Five representatives from Longreach and one from Phoenix will also join as non-executive board members and a new management structure will be put in place. Upon completion of the investment from both financial sponsors, the new management will develop a recovery plan for NIWS. The company will retain its listing, which is “a critical component of this transaction,” according to the statement.

Mark Chiba, Longreach chairman and partner said: “Our team of senior professionals and advisors possesses considerable expertise in the technology sector, which is one of our main focus areas.”

In June, Longreach acquired a control stake in Taiwan’s EnTie Commercial Bank, in a transaction worth $692 million.