PE deals drop in Japan

Despite increased confidence in the country, PE investments declined 57% year-on-year.

Private equity-backed M&A in Japan substantially declined year-on-year, notwithstanding a number of large deals in the country.

Private equity firms invested $5.9 billion during 2013, a 57 percent decline from the $13.9 billion invested during 2012, according to data from Mergermarket.

However, while deal value dropped, the number of deals actually increased to 205, compared to 161 the previous year, indicating an increase in smaller deals.

But Japan had a number of large investments, with investor confidence rising after a series of regulatory reforms to jumpstart the economy were introduced by Prime Minister Shinzo Abe.

For example, in December, Bain Capital, which has previously done buyouts in Japan, offered to pay JPY 51.4 billion (€361 million; $494 million) to acquire Japanese market researcher Macromill, according to a securities filing.

Kohlberg Kravis Roberts has also focused on the Japan market this year, having raised a $6 billion fund for Asia Pacific.

As its first acquisition from the fund, KKR agreed to a $1.67 billion deal with Panasonic to acquire its healthcare division, taking an 80 percent stake in the business.

Many Japanese corporates have been reevaluating their structures and focusing on their core businesses, allowing private equity firms to pick up their non-core assets, industry sources say.

“Abenomics started the trend of Japanese conglomerates refocusing operations and this deal shows it’s continuing,” one source told Private Equity International earlier.

The Longreach Group also announced a corporate carve-out earlier this year, acquiring full ownership of Hitachi Via Mechanics from parent company Hitachi, according to a joint statement.

However, some argue that Japan’s strongest dealflow is in the small- and mid-size enterprise sector and firms should not rely on the rare buyout opportunities that come from corporate divestitures.

For example, between 1998 and the end of 2012, only 3 percent of all deals (by volume) were over $1 billion (JPY 100 billion), according to data from Brightrust PE Japan, a Tokyo-based private-equity investment advisory firm.

“Real deal flow is in the small-to-mid cap space – and we may look at sub-$100 million targets,” Tamotsu Adachi, managing director of The Carlyle Group in Japan, told PEI earlier. “Equity cheque deals larger than $200 million are very rare.”