Private equity funds increasing presence

Jiji Press

11:26 JST, December 19, 2022

TOKYO (Jiji Press) — Private equity funds have been enjoying a growing presence in Japan, providing companies with opportunities for business improvement.

PE funds invest funds procured from institutional investors and others mainly in privately held companies, boost their corporate value, and sell them or take them public.

Japan Industrial Partners Inc., which has been awarded preferential negotiating rights for Toshiba Corp.’s business reconstruction, is one such fund. JIP beat rival investment companies from which the Japanese electronics and heavy machinery maker solicited turnaround proposals to put to an end its management confusion stemming partly from its confrontation with activist shareholders.

JIP has proposed acquiring Toshiba for over ¥2.2 trillion with investment from Japanese companies and loans from banks. The fund plans to take the company private through a tender offer after it secures a loan commitment from banks.

It has been reported that a syndicate of banks including Sumitomo Mitsui Banking Corp. and Mizuho Bank is preparing to lend ¥1.2 trillion to JIP to assist in its acquisition of Toshiba.

This would be one of the largest acquisition deals for a Japanese company. Some uncertainty remains, however, because Toshiba has nuclear and other operations that are directly linked with Japan’s economic security.

Akitoshi Ito, professor of Hitotsubashi University Graduate School of Business Administration, who is familiar with corporate financing, said that PE funds have gradually been accepted in Japan as a means of business restructuring. The number of large-scale acquisition deals has increased in the country in the past five to 10 years, and some foreign investment companies have set up branches in Japan, he noted.

On the bidding process for Toshiba, Ito said that it is not clear what the Japanese government wants to do about the company. He also pointed out that foreign investors may start to worry about the possibility of discretionary acts by the government hampering the establishment of a corporate governance system reflecting their voices at the firm.

A series of acquisition deals worth as much as over ¥100 billion have taken place in Japan in recent years, reflecting moves by firms to sell noncore businesses to maximize their corporate value.

They included deals for Olympus Corp.’s science business, Hitachi Metals Ltd. and Hitachi Transport System Ltd. JIP took part in the acquisition of Hitachi Metals.

A growing number of companies are opting to go private to accelerate business revamps. Among the firms is Uzabase Inc., the operator of the NewsPicks news website, for which The Carlyle Group of the United States is conducting a tender offer.

Hiroyuki Otsuka, deputy head of The Carlyle Group’s operations in Japan, said that such a strategy is aimed at taking companies public again after raising their corporate value through the implementation of what they need to do.

The value of private equity transactions in Japan came to some ¥2.7 trillion in 2021 and is expected to stay around the same level this year, up sharply from some ¥300 billion in 2018, according to consulting company Bain and Co.