Japan Buyout

Buyout Firms May Have to Think Smaller in Japan

Japanese companies have often resisted private equity deals but, despite the slow-moving process,  the buyout industry is gaining ground in the country.  Big buyout shops have opened up offices in Tokyo, firms including KKR, Carlyle, TPG and Cerberus.  While these heavyweight private equity firms are increasingly frustrated with companies in Japan, they may be thinking too big, according to Tokyo-based Ant Capital. 

Ant Capital has been able to sell 5 of its portfolio companies just in the last year and recently purchased VarioSecure Networks for $5.7 million.  The firm targets companies valued at less than $200 million in enterprise value.   According to the Center for Asia Private Equity Research, smaller deals have generated better returns for buyout firms in Japan.

"Basically small cap is undervalued because of its non-profile. To be small caps means they are discounted already," Ozaki [CEO at Ant Capital] said at the Hong Kong conference.

The market for private equity in Japan has indeed looked unappetizing.  The value of acquisitions in Japan by private equity firms fell to $8.8 billion last year from $21.2 billion in 2007, according to Thomson Reuters data. That is just $1.7 billion so far this year.  But targeting smaller transactions may indeed be the right strategy, as 94 percent of Japan's roughly 3,000 M&A transactions were worth less than $100 million last year, according to Thomson Reuters. 

Some 33 deals completed from 2004 through the end of June this year have showed transactions for companies with market value between $100 million and $500 million had an internal rate of return of 19.6 percent. That compared with an 8.7 percent internal return on companies with more than $1 billion market value.   Source

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Tags: japan, japanese companies, private equity japan, alternative investment in Japan, Japan buyouts, buyout industry in Japan, returns, enterprise value, ant capital

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