PRINT THIS PAGE Greeting growth05/07/2006. Source: Asia Private Equity Review (APER).
For more than four years, private equity in Japan has been synonymous with buy-outs, says the Asia Private Equity Review. But now buy-outs are taking a back seat as Japan greets welcome signs of an economic rebound. Following the sale of Kanebo by the Industrial Revitalisation of Japan that was concluded in late January, a chapter of corporate restructuring in the country has closed.
With Nikkei 225 on an ascending path, breaking through 16,000 for the first time in 16 years, it signaled Japan’s readiness to welcome economic growth that has eluded the world’s second largest economy for nearly 15 years. In the land of cherry blossoms, its private equity investors have been vigilant to the advent of the changing winds.
For the first time since the new millennium, investment in companies that promise growth is prospering. For the four years ending December, taking controlling positions in companies have defined Japan’s leading position in Asian buyouts. But in 2005, buyouts registered a drastic decline both in terms of fund pool as well as transaction sums, indicating private equity investors have been focusing their attention on noncontrolled situations.
After enjoying a record year in 2004 in which over US$2.7 billion of capital came in for buyouts, the US$396 million registered in 2005 was a petite 14.5% of that in the preceding 12 months. It was also the first decline in the buyout fund pool since 2001 (fig.29). Instead capital for nonbuyouts accounted for 81% of the 2005 capital pool, a development that bespeaks investors’ assessment of the future dynamics in Japan’s economy.
Even in terms of transaction values, buyouts have lost their reigning position. The US$2.1 billion consummated during 2005 was less than half of the US$5.5 billion recorded in 2004. This can partially be explained by a large decline in the average deal size. In 2004, the average buyout deal had an enterprise value of US$305 million, while that in 2005 was US$162.6 million, a 47% drop.
The 12 months ending December was the first calendar year that registered capital deployment to companies in growth/expansion situations surpassing capital deployment to the buyout stage. Of the US$4.7 billion that Japan attracted from private equity investors during the year, 50.3% or US$2.34 billion was captured by companies that are seeking future growth (fig.30).
Significantly, investors are willing to commit a large sum even without securing a controlling position in the acquired company. In 2005’s largest transaction, Seibu Group, Cerberus Asia Capital and Nikko Principal Investments Japan committed ¥160 billion (US$1.4 billion) for a 33% equity position. The trend was in sharp contrast to the past, in which virtually all transactions that passed the US$500 million enterprise value provided investors a controlling position deals (fig.31)
After four years of commanding the lead position in the Asian buyout scene, ‘controlled’ deals have assumed a less prominent role in Japan. With the return of non-buyouts, hopefully, investors will be able to boast spectacular returns similar to those lauded by buyout investors.
Asia Private Equity Review (APER) is the foremost voice on matters related to private equity/venture capital in the region. Well-recognised as being the singular source for accurate and timely news, in-depth analysis and global perspectives, APER is published by the Hong Kong-based Centre for Asia Private Equity Research. For further information please visit their website at www.asiape.com or email them at info@asiape.com
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