The Private Equity Review: Japan
I Overview
i Deal activity
More than 20 years have passed since the emergence of the Japanese private equity (PE) market. In recent years, we have seen many large buyout deals led by global-based sponsors. There have been three main trends in Japanese PE transactions.
The first trend is carve-out deals. The Practical Guidelines for Business Restructuring issued by the Japanese government in June 2020 strongly encourage listed companies to review their business portfolios. This is one of the factors encouraging large Japanese companies to sell their businesses. Many of the recent large-scale buyouts were carve-outs in which global-based PE funds were the buyers.
The second trend is buyouts from the founders’ families, which serves as a form of business succession. Many founders of Japanese blue-chip companies are approaching retirement age and they do not always have suitable successors. Selling to PE funds lets them cash out their assets while allowing them to pass on the business to a professional management team. Business succession has become an important source of PE transactions in Japan.
The third trend is the increase in growth equity investments. Since the mid-2010s, Japanese start-ups have been inclined to raise several rounds of additional financing before going public to increase their valuations at initial public offering (IPO). Domestic PE funds and strategic buyers are leading growth equity investments.
According to RECOF DATA, which is one of the most reliable statistical data sources for merger and acquisition (M&A) transactions in Japan, the number of acquisitions by PE firms involving Japanese targets from January to December 2022 was 1,071, 197 of which were inbound transactions, whereas the number of management buyouts (MBOs) involving PE firms during the same period was 15.
RECOF DATA also shows that there were 92 divestitures by PE firms from January to December 2022.
Major sponsors active in Japan include global-based firms such as KKR, Bain Capital, CVC, Carlyle, MBK and Apollo Global Management and domestic independent firms such as Unison Capital, Advantage Partners, Polaris Capital, Integral, Japan Industrial Partners, J-Star, J-GIA, J Will Partners and others. There are also domestic firms that are affiliated with financial institutions (banks and securities firms) and trading companies.
