Again, with Gusto

Bain Capital is one of the few large-cap global firms that manages to pull off big deals in Japan’s notoriously difficult LBO market. From 1998 to 2010, only 2 percent of Japanese private equity deals were worth $1.25 billion or more, according to recent research from advisory firm Brightrust PE Japan.

Bain, which opened a Tokyo office in 2006, has just bought casual restaurant chain owner Skylark, which operates 3,600 stores under the Gusto, Bamiyan, Jonathan’s and Yumean brands and posted $4.5 billion in sales last year.  The price tag – $2.1 billion – makes it the largest private equity deal in Japan in two years.

Skylark is no stranger to private equity. In 2006 CVC Asia Pacific and Nomura Principle led its $2.4 billion management buyout, the largest such take-private ever recorded in Asia.

But things didn’t go quite to plan. In August 2009, it was reported that CVC Asia Pacific had “given up” on its stake in Skylark, which in 2008 reported losses of roughly $278 million despite a $4 billion turnover, and was struggling to repay its debts. Having already sold some of its stake in the company to Nomura to raise cash, CVC gave its remaining 20 percent stake to Chuo Mitsui Capital, a private equity fund owned by lender Chuo Mitsui Holdings, in return for being freed from any debt obligations.

Nomura has also been keen to exit the asset for some time – but negotiations have been delayed first by the Tohoku earthquake (plus the subsequent tsunami and nuclear crisis) and then by an outbreak of dysentery linked to 15 of its Gusto restaurants.

So what makes Bain think it can do better? Fast food expertise, in short. In Japan, the firm already owns Domino’s Pizza, while globally some of its biggest success stories have been growing (and reaping impressive returns from) Dunkin’ Brands and Burger King restaurants in the US. The latter, for example, grew revenues from $1.66 billion to $2.05 billion and reduced debt from $1.3 billion to $285 million within four years of Bain’s ownership. Repeating the trick with Skylark could result in some seriously tasty returns. Financially, at any rate.