Bain Overcomes `Vulture' Moniker in Japan as Deal Volumes Surge

  • Succession-related mergers rose to a record high in 2015
  • Tokio Marine, Unison have also seen increase in such deals

Bain Capital LLC’s three acquisitions in Japan last year all had one thing in common: They involved companies seeking help with management transitions.

The private-equity firm’s three succession-related deals in Japan in 2015, including a hot-spring chain and a mushroom producer, exceeded $1 billion in enterprise value and Bain expects a similar volume for 2016, Yuji Sugimoto, managing director in Tokyo, said in an interview.

Bain joins firms such as Unison Capital Inc. and Tokio Marine Capital Co. in seeing the biggest investment opportunities in Japan being spawned by a move away from founder-run companies to those managed by seasoned industry executives. They’re benefiting from a gradual shift in perception among business owners, who are recognizing that investors can help them expand and be more efficient. That’s a change for private-equity funds, who’ve historically been viewed with suspicion and sometimes been disparagingly referred to as “hagetaka,” or vulture funds.

“The culture and the trends in Japan have been changing. The mentality of Japanese owners has also changed,” Sugimoto said. “More and more people have started to see private equity as someone who they can trust and grow the business together.”

The word “hagetaka,” associated with ruthlessness and predatory behavior, captures the antagonism that Japanese companies felt toward foreign capital after Ripplewood Holdings Inc.’s acquisition of Shinsei Bank Ltd. in 2000.

Favorable Trend

There is evidence that the trend is looking more favorable for private-equity firms doing business in Japan. The number of mergers and acquisitions related to management transitions rose to 262 last year, the highest since Recof Corp., an M&A consulting firm, started to compile such data in 2008. The number of deals gained more than 87 percent over the last five years, Recof said.

Bain acquired Ooedo Onsen Monogatari Co., a hot-spring chain, after the founder decided to sell his business last February. In April, it bought Yukiguni Maitake Co., a mushroom producer, after the former president stepped down amid an accounting investigation. In May, it partnered with the founder of Japan Wind Development Co., who doesn’t have a successor, to jointly develop the business.

Go Betweens

Tokio Marine Capital and Unison Capital have also seen a rise in companies that are seeking help because the current management or successors taking over family businesses have struggled to expand or sustain growth. Four out of five companies Tokio Marine owns fall in this category, while more than half of companies in Unison’s portfolio are undergoing some changes in leadership, according to the firms.

“It is very clear that succession and management-upgrading needs really are driving” decisions to go with private-equity funds, said Tokyo-based Tatsuo Kawasaki, a partner at Unison Capital.

In many cases, regional banks are acting as matchmakers between business owners and private-equity funds. Koji Sasaki, president and managing partner of Tokio Marine, said his firm has been approached by regional banks in the past year, which underscores how the business is changing.

One in three deals done by Nippon Sangyo Suishin Kiko Ltd., a Tokyo-based private-equity firm, was introduced to them via regional banks, according to an estimate by Managing Partner Jun Tsusaka. The firm acquired Meotoiwa Paradise Co., an aquarium operator, through the introduction of Mie Bank Ltd. last year, he said.

Business Partners

To Sugimoto, who worked at Ripplewood before he joined Bain, this transformation has come along with a growth in the Japanese economy. At the time that Ripplewood returned once-bankrupt Shinsei Bank to profit in 2001 by cutting off deadbeat borrowers such as Sogo Co., Japan’s economy was in the midst of the so-called lost decade and distressed deals had soared to a record high, according to Tokyo Shoko Research Ltd. 

Since taking office in December 2012, Prime Minister Shinzo Abe has introduced measures to boost the economy. The number of bankruptcies fell to a 25-year low in 2015.

“Now the Japanese economy has come back and people realize that they are different types of funds,” Sugimoto said. “Private-equity funds are not vulture funds. They are more like business partners.”

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