M&A

They’re again. After a break earlier in the new millennium, American private equity firms are increasingly&nbsp, targeting Japan for their Eastern investment techniques. And the Chinese government and regulators have taken bold steps to welcome them and help make Tokyo Tokyo the world’s first global financial hub.

Back in the late 1990s and early&nbsp, 2000s&nbsp, Japan was a favored destination for European alternative property managers. In 1999, for example, Newbridge Capital, co-founded by Texas Pacific Group ( then TPG), took a lot interest in&nbsp, the online service provider&nbsp, Livedoor. &nbsp,

And, in 2000, J. Christopher Flowers and Ripplewood Holdings organized a consortium of investors to purchase Japan’s distressed Long Term Credit Bank, renaming it Shinsei ( translation: &nbsp, “rebirth” ). After Shinsei went public in 2004, the bargain was commonly regarded as one of the most successful private equity investments ever, both in Asia and in the early days of private equity investment. &nbsp,

Curiosity Waned&nbsp, &nbsp,

But by the time of the Great Financial Crisis, American businesses began to find other Asian nations, &nbsp, most notably&nbsp, China and South Korea, &nbsp, more open and welcoming –countries&nbsp, where owners could achieve greater financial returns with fewer regulation roadblocks.

While American investors retreated, Eastern PE money continued to undertake to Japan. The Eastern PE large PAG continued to build its staff and&nbsp, investments&nbsp, in Tokyo. The company bought Universal Studios Japan in 2015 and reportedly exited three years later with&nbsp, a&nbsp, five-times&nbsp, return&nbsp, on&nbsp, their purchase. &nbsp, PAG ‘s&nbsp, most significant investment of late&nbsp, is&nbsp, the&nbsp, largest theme park by physical size, Nagasaki’s Huis Ten Bosch.

One industry observer&nbsp, told Asia Times&nbsp, that&nbsp, while, about a decade ago, &nbsp, there were a few&nbsp, of&nbsp, what he calls&nbsp, one-off “predecessor transactions” &nbsp, by mega&nbsp, global&nbsp, funds &nbsp, including KKR and Bain, &nbsp, Western PE firms&nbsp, had&nbsp, largely&nbsp, remained circumspect&nbsp, about Japan&nbsp, – at least &nbsp, until recently&nbsp, when&nbsp, the country &nbsp, made a conscientious effort to win them back by committing to a series of sweeping&nbsp, regulatory initiatives. These included:

•&nbsp, Implementation of the Corporate Governance Code ( 2015, revisions in 2018 and 2021 ): &nbsp, Introduced to improve transparency, accountability, and decision-making in Japanese corporations, which aligns with international standards, the&nbsp, code encourages companies to have more independent directors&nbsp, to provide companies&nbsp, an outside perspective&nbsp, and&nbsp, commitment to shareholder&nbsp, rights, making Japanese companies more attractive to foreign investors, including PE firms.

The Stewardship Code’s implementation ( 2014, revised 2020 ): This code encourages institutional investors to work with the companies they invest in more, putting an emphasis on shareholder returns and sustainable growth. American PE firms discover working with shareholders that promote the implementation of value-adding techniques.

•&nbsp, Tokyo Stock Exchange&nbsp, market restructure ( 2022 ): &nbsp, This initiative simplified and restructured the TSE into three new segments: Prime, Standard, and Growth Markets. By highlighting encouraging growth sectors, the restructuring aims to define market dynamics, boost market visibility, and draw in foreign investors.

•&nbsp, Guidelines for Corporate Takeovers&nbsp, ( 2023 ): &nbsp, This bold action by The Ministry of Economy, Trade and Industry ( METI ) &nbsp, is designed&nbsp, to facilitate mergers and acquisitions ( including hostile takeovers ), recognizing them as critical to business revitalization and growth. The 2023 Guidelines aim to improve Chinese people M&amp, A practices by incorporating principles like shareholders ‘ intentions and the union’s fiduciary responsibility to make the Asian business manage business more visible to international clients. &nbsp, This directly benefits private equity firms, which&nbsp, are a major driver of email M&amp, A&nbsp, and as a” white hero” alternative to hostile protesters.

Business observers&nbsp, today&nbsp, say the governmental change toward&nbsp, encouraging&nbsp, greater foreign investment is also aided by a poor yen and persistently low interest rates.

Solid rise

The&nbsp, effect on&nbsp, offer growth has been&nbsp, remarkable. &nbsp, The&nbsp, Japanese&nbsp, Private Equity Association and the Japanese Venture Capital Association &nbsp, track the number of&nbsp, private equity&nbsp, offers in the country as well as the price of&nbsp, those&nbsp, purchases. In 2020, &nbsp, there were 96 personal equity&nbsp, deals valued at&nbsp, 1.2&nbsp, trillion renminbi. By 2023, &nbsp, the&nbsp, deal&nbsp, figures and length had jumped to 125 private equity deals valued at 5.9&nbsp, trillion renminbi.

Expediting the re-entry of&nbsp, western&nbsp, secret equity&nbsp, firms&nbsp, has fallen mostly to FinCity Tokyo, founded in 2019. FinCity Tokyo, &nbsp, a public-private&nbsp, engagement, &nbsp, was created to support &nbsp, owners understand and improve value in the novel regulatory environment. &nbsp, Its&nbsp, stated aim is&nbsp, making&nbsp, Japan’s capital&nbsp, an “international monetary centre”.

To do so, &nbsp, FinCity Tokyo&nbsp, coordinates with the government of Japan, the Tokyo Metropolitan Government&nbsp, and 57&nbsp, part companies including business associations, major financial institutions, international investors&nbsp, and&nbsp, service&nbsp, services. The&nbsp, organization&nbsp, also&nbsp, provides proper assistance to&nbsp, financial&nbsp, firms&nbsp, seeking to&nbsp, enter and&nbsp, operate smoothly&nbsp, in Japan. Since 2022, it has helped nine global companies, with goods of almost$ 1.3 trillion, &nbsp, to successfully activate and engage in Japan. &nbsp, &nbsp,

FinCity Tokyo ‘s&nbsp, Executive Director Keiichi Aritomo&nbsp, says one of its tasks is helping international investors secure workers in a tight labour market. The company even covers the costs of hiring new PE investors in search of qualified workers.

Accepting non-family control

The failure of&nbsp, Japanese business owners&nbsp, to establish family succession&nbsp, plans&nbsp, used to strike Western investors as a stigma, &nbsp, but owners now&nbsp, have come to&nbsp, welcome&nbsp, external ownership and professional management by Western buyers. Or, as Aritomo of FinCity Tokyo writes, “private equity firms provide the experience to offset labor shortage with skilled management and productivity gains.”

Bain &amp, Company, in a report published last spring, &nbsp, said&nbsp, that Japan was the leading deal market in Asia-Pacific in 2023&nbsp, with private deals as the dominant strategy, noting “more companies are preferring to go private”. And&nbsp, the&nbsp, capital&nbsp, needed&nbsp, to complete deals via limited partnerships is plentiful. ” There is increasing LP appetite for Japan”, noted Sebastien Lamy, co-head of Bain &amp, Company’s Tokyo-based Asia Pacific PE practice.

PE firm&nbsp, Carlyle, based in Washinton, DC, with investments and operations&nbsp, globally, &nbsp, is&nbsp, also focused on&nbsp, Japan. &nbsp, In a report last September, the firm pointed to the positive regulatory changes, the attractive valuations, the stable political climate and the continued investment opportunities. ” We are seeing many overseas GPs]general partners ] establish offices in Japan for the first time” ,&nbsp, the firm said.

And, in an analysis last year, &nbsp, the management consulting firm, &nbsp, McKinsey&nbsp, &amp, Company, &nbsp, noted that, &nbsp, while&nbsp, Japanese&nbsp, private equity&nbsp, is&nbsp, a growing presence in the financial landscape, the industry still has &nbsp, more room&nbsp, to grow.

Increasingly, western private equity players&nbsp, have gotten&nbsp, the message.

Owen Blicksilver is a private equity-focused public relations executive in New York.

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