Carlyle sets sights on 300 Japanese businesses as PE deals boom

U.S. investment fund Carlyle Group is studying around 300 Japanese businesses as part of its pipeline, a sign of the continuing boom in private equity deals in the country.

“We look at a lot of deals every day,” Kazuhiro Yamada, co-head of the Japan buyout advisory team, said in an interview. “Even though competition is increasing, if you look at the number of potential deals, there are actually not enough general partners to do them,” he said, referring to private equity firms and their executives.

 

Carlyle will probably announce another two or three transactions in Japan this year, Yamada said. The biggest challenge is having enough employees to oversee and manage the deals Carlyle wants to do, he added.

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Private equity firms are flourishing in Japan after struggling for years to shake off a perception that they are vultures. Selling to such alternative asset managers is increasingly seen as a palatable way for companies to exit noncore businesses or go private.

Japan was the biggest private equity market in Asia in 2023 with around ¥5.9 trillion ($38 billion) in transaction value — about double the annual average of the previous five years, according to a report from consultancy Bain & Co. The figure was boosted by more management buyouts, the report noted.

Carlyle looks across three sectors in Japan for investments: general industries; consumer and healthcare; and technology, media and telecommunications. There are about 100 potential projects in the pipeline for each sector, Yamada said.

“These next five to 10 years are going to be really busy,” he said.

Japan has a rich source of deals, including around 1.5 million family-owned companies that face succession issues, as well as carveouts where Carlyle would seek to buy units of large companies. Yamada said there are about 300 conglomerates in Japan that have more than 100 subsidiaries — providing a potential pool of 30,000 businesses to evaluate.

Still, exits are becoming a hurdle globally amid falling valuations and uncertain market conditions. Yamada said that while some initial public offerings may be postponed, other options have also become available in Japan, such as selling to another owner, because local appetite for deals is strong.

Carlyle last month said it raised ¥430 billion for its fifth Japan buyout fund. That’s about 70% bigger than the previous one it pulled together in 2021 and the largest Japan-focused buyout fund ever raised.

About 70% of the yen-denominated fund is from international investors, up from about 60% in earlier funds, Yamada said. There was strong interest from Middle Eastern and Asian institutions and sovereign wealth funds, as well as high net worth Japanese individuals, he said.

Carlyle, which has been operating in Japan since 2000, has made more than 40 private equity investments locally. Last month, the firm said it will seek to take fried chicken chain operator KFC Holdings Japan private with a ¥95 billion tender offer.

 

Source:The Japan Times

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