PE climate warms up in Japan

Private equity in Japan senses some positive sentiment after decades of stagnation.

One year into Abenomics, Prime Minister Shinzo Abe’s ‘three arrows’ plan for economic revival, the stock market has spiked nearly 50 percent, the yen has dropped 20 percent against the dollar, and some large corporate divisions have (finally) been carved out and sold. 

“Abenomics has created a perception and appetite among international LPs that something will be different, and that has overlapped with less capital being allocated to other Asia markets,” said Richard Folsom, representative partner of Advantage Partners in Tokyo.

Advantage closed a ¥20 billion ($200 million) bridge fund at the beginning of last year, which Folsom says came together quickly in six months.

Tokyo-based Polaris Capital Group, which is near a final close on ¥500 billion Fund III, recently received a $50 million commitment from a US-based LP, according to industry sources.

“In 2012 when we launched, it was hard to even make an appointment with a foreign LP,” said Hideo Mitsuda, partner & co-chief investment officer. “Last year, the situation was easier and this year we had foreign LPs visiting the Japan office.”

Japan-targeted funds attracted $2.16 billion last year, according to Private Equity International’s Research & Analytics division. But the figures are distorted by the state-run Development Bank of Japan’s $1.52 billion Competitiveness Enhancement Fund; without that, just $640 million was raised last year, only a little more than the total raised in each of the previous two years.

Is momentum building for corporate divestitures?   

Buyer   Seller    Value     
JIP  Sony   $438m   Feb 2014
JIP  NEC   $682m   Jan 2014 
Longreach  Arrk   NA   Dec 2013 
Bain  Macromill   $407m   Dec 2013
KKR  Panasonic   $1.67bn   Sept 2013
Longreach  Hitcahi   NA   Aug 2013

 

On the deal side, Japan’s corporate divestitures haven’t ignited yet, but there are some sparks. For example, Kohlberg Kravis Roberts’ purchase of Panasonic’s healthcare division, valued at $1.67 billion, closed this month, while the Longreach Group bought units from Hitachi and Arrk.

What’s different this year is pressure from shareholders, courtesy of the rising index, says Hiro Hirano, chief executive officer of KKR Japan, who joined the firm last year from AlixPartners.

For example, Sony’s divestiture of its PC division in February to Japan Industrial Partners (reportedly for $493 million) was driven by activist shareholders, including Daniel Loeb’s hedge fund Third Point.

“Shareholder activism is something new to Japan,” Hirano says. “It’s quite different than the last ten years when nobody in or outside of Japan cared so much about companies on Japan’s stock market.”

 

 

Be sure not to miss PEI’s Japan conference, GAIF Japan 2014, April 10 in Tokyo. Details here. 

For a longer feature on Japan, see this month’s issue of Private Equity International, available here.