Strategy shift?

It was revealed last week that CCMP Capital has joined Japan’s Unison Capital in a bid to acquire Daito Trust Construction, a Japanese real estate development company. This was after New York-based Aetos Capital and Japanese investor Mori Trust decided to reduce their involvement in the deal, according to Reuters.

The Daito buyout, which has been in the works for more than six months now, is perhaps a sign of things to come, given the paucity of mega-deals in the region.

A source familiar with the two firms, as well as the Japanese private equity market, told PEO that while an investment by a private equity firm in a real estate operating company might seem a bit off the mark in most countries, it is not unusual in Japan.

“Japan’s real estate market is very mature, so private equity firms do acquire these companies,” the source said, adding that Unison made a similar investment in the past with Cosmos Initia, a condominium developer. “Most LPs aren’t going to be surprised that Unison is doing this deal.”

CCMP, however, is another matter given the deal represents a departure from the pure private equity plays it has made in the past. The firm has closed some large LBOs in recent years such as the buyout of Independent Liquor in partnership with Australia’s Pacific Equity Partners, which was estimated to be worth nearly $900 million, and the $1.5 billion acquisition of the Yellow Pages Group in New Zealand in conjunction with Teachers' Private Capital.

Siddharth Poddar

But those types of large private equity deals in Asia have dried up, presenting a problem for firms needing to deploy large sums. CCMP, for example, is now raising a $2.5 billion fund, and currently investing out of a $1.6 billion fund.

The Daito deal looks set to be the largest private equity-backed buyout in Japan, but it's still small by mega-fund standards: Daito has a market value of $5.2 billion, according to Reuters.

CCMP's involvement in the deal highlights both how difficult it has become for managers to write big cheques in the region as well as how Japanese real estate developers are being forced into bankruptcy because of an inability to secure credit. Sixty Japanese property companies went bankrupt this July, according to Tokyo Shoko Research.

In light of the slowing Japanese real estate market, it is hard to predict how a deal for Daito would fare. But with opportunities limited elsewhere, and private equity firms having closed substantially large funds in the past few months, they may increasingly look to take such risks.