The continued and growing interest in the Japanese private equity market
By Cornelius V. Krips
The Japanese private equity market experienced a breakthrough year in 2021, with the number of deals and deal value and growth continuing this year despite rising inflation as well as interest rates worldwide.
Private equity firms in Japan include both domestic firms and Japanese branches of international firms. The latter tend to focus on the larger categories of transactions. According to the Japan Private Equity Association (JPEA), acquired companies are held for an average of four to five years before being divested, usually through a sale to a strategic party or an IPO. The most important current trends in transactions include corporate spin-offs (especially in larger transactions), owner/founder succession (usually in small to medium-sized transactions), and late-stage growth investments in start-ups.
Strong increase in transaction values and number of investments since 2018
Based on the data collected by PwC, the monetary amounts and number of domestic investment deals (by industry) involving PE funds increased over the last two years. It should be noted that the share of technology, media, and telecommunications as well as energy utilities and resources are the largest deal amounts.
The strong growth or interest in the Japanese market is due to the following key characteristics, according to The Bridge. A large number of established companies have underperforming businesses on their books, which provides opportunities to restructure these businesses, resulting in operational efficiencies. In addition, most restructuring is being done on the back of ESG mandates. Another reason is the low-interest rate environment in Japan, which makes debt financing in that country an arbitrage opportunity compared to the rest of the world and consequently more attractive for buyout transactions.
KKR wants to expand its market position in the Asian market, especially in Japan
According to the Financial Times, U.S. private equity group KKR plans to increase its exposure to Japan. In doing so, they are taking advantage of low company valuations and especially the weakness of the yen to increase their investments. KKR has around $15 bn under management in the Asian sector and is looking to invest a larger portion of its own balance sheet directly in Japan and in fast-growing Asian international hubs such as Singapore. Looking at the past, KKR has identified Japan as one of its key markets outside the US. Past or future deals include Hitachi, Panasonic, and other conglomerates that wanted to divest their non-core businesses.
Recent events in the Japanese private equity market
CVC Capital Partners is in talks to reduce its planned contribution to a takeover bid for Toshiba Corp. led by Japan Industrial Partners Inc. to facilitate antitrust approval for the deal, Bloomberg reported. The aim is to allow Chinese regulators to conduct a review that could delay the deal by reducing the amount of their investment and the size of their stake in the Japanese conglomerate, it said.
This newsletter is fully independently produced by the members of the Nova Venture Capital and Private Equity Club. This club is run by students of the Nova School of Business and Economics.
You can directly access the sources we used:
Antoine Gara and Kana Inagaki. (October 2022). Financial Times: KKR to push further into Japan as yen hovers at 32-year low. Available at: https://www.ft.com/content/086956b2-0260-4117-bdb2-c43e824e860f
Hideo Nagura, Satoshi Matsunaga, Ryo Shimakata, Yusuke Aiba, Keisuke Ohnishi, Kanehito Imai. (June 2022). PwC: Trends in Japan’s private equity market and related considerations — 2022. Available at: https://www.pwc.com/jp/en/knowledge/thoughtleadership/trends-and-considerations-of-pe-in-japan2022.html
Jim Verbeeten, Sebastien Lamy, Azusa Owa. (May 2022). Bain & Company: Japan Private Equity Transactions Reach Highest Level ever with Deal Value Hitting ~¥2.7T in 2021. Available at: https://www.bain.com/about/media-center/press-releases/2022/japan-pe-report-2022/
Market Description based on a Research by Bain & Company. (2022). JPEA: Private Equity Market in Japan. Available at: https://jpea.group/english/private-equity/private-equity-market-in-japan/
Taro Fuse, Aaron Kirchfeld, Manuel Baigorri. (October 2022). Bloomberg: CVC Weighs Cutting Contribution to JIP-Led Toshiba Bid. Available at: https://www.bloomberg.com/news/articles/2022-10-27/cvc-is-said-to-mull-cutting-contribution-to-jip-led-toshiba-bid
Mark Bivens. (July 2022). The Bridge: Private equity in Japan: a perfect storm. Available at: https://thebridge.jp/en/2022/07/rudevc-pe-in-japan-a-perfect-storm
