TOKYO: Carlyle Group, which oversees about US$193bil, will use the almost US$1bil in its third Japan buyout fund to acquire family-owned firms and other mid-cap companies, according to its local co-head.
Carlyle, the world’s second-largest private equity manager, is known in the United States for buying household names for tens of billions of dollars.
In Tokyo, it often goes for family-owned companies with enterprise values of less than US$300mil.
Tamotsu Adachi, managing director and co-representative for Japan, says he’s sticking with this approach after finishing raising 119.5 billion yen (US$996mil) for the latest fund last month. He says health-care and consumer companies are two of the top targets.
In a market often averse to foreign funds, Carlyle’s list of Japan acquisitions shows how private equity firms can close deals by targeting smaller companies and staffing offices with local investment professionals.
It’s also partly by necessity: so-called mega-buyouts have slowed globally since the financial crisis, and there were never many in Japan anyway. Smaller buyouts are also often more lucrative.
“It's continuing the strategy we had in the past,” Adachi, 61, said in an interview in Tokyo. “We have a clear track record.”
Since opening a Tokyo office in 2000, Carlyle has acquired about 20 companies from its dedicated Japan buyout funds and exited about half of them, according to Adachi.
To counter Japanese executives’ reluctance to sell to overseas funds, Carlyle set itself up like a local operation, and all 20 investment staff are Japanese.
“This is very important,” Adachi said. “Japanese business culture and how to do business is very different from other countries. So you really have to develop trust and relationships with management and employees of the invested companies.”
Carlyle is looking to buy businesses that are family owned, have room to expand overseas, or are non-core operations of a bigger company, according to Adachi.
The fund is seeking to acquire pharmaceutical, medical-equipment and health-and- nutrition companies likely to benefit as the population ages.
Carlyle is also interested in businesses with respected Japanese products that can be sold to Asian consumers, those with “seasoned technology,” and industrial firms, he said.
“There are about 400,000 family-owned companies in Japan, and two-thirds of the CEOs of those companies have not found their successors,” he said.
“And those CEOs are getting older and older,” he said. “Not only family-owned companies but a lot of mid-cap companies do not have the capability to grow outside of Japan, although they have very good products, services and so on.
Carlyle has made four investments from the latest fund. Oyatsu Co, a snackmaker, and Sunsho Pharmaceutical Co, which produces vitamins and supplements on contract for other companies, were bought from family owners. Aruhi Corp, which sells mortgages, and Hitachi Metals Techno Ltd came from larger firms. – Bloomberg