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Carlyle’s head of Japanese business has forecast an increase in private equity operations, as a novelty post-Covid business environment and increasing pressure on companies to achieve carbon neutrality forces a wave of acquisitions and derivations.
Kazuhiro Yamada told the Financial Times in an interview that the pandemic was accelerating the sale of assets and the purchase of new technology among Japanese companies that would have previously taken years to make such decisions.
“Consumer behavior and [the] the business model changed drastically as a result of Covid-19, so that the affected companies have no choice but to carry out structural reforms, ”said Yamada, who added that the availability of cheap financing from Japanese megabanks make the environment particularly attractive to private capital.
A post-pandemic boost would be based on the excitement that has attracted the world’s leading private equity firms to Japan. Several groups, including KKR, we believe the country is the richest market in opportunities outside the US.
The average size of PE operations in Japan has been increasing, but Carlyle has focused on smaller ones, often with companies with which it has been in negotiations for several years. Since 2000, Carlyle, which has been in the country for more than two decades, has invested more than $ 3.2 billion in 27 Japanese companies.
Bain & Co., the consulting group, has calculated that privately held companies collectively had a record $ 477 billion of unspent capital focused on the Asia-Pacific region by the end of 2020.
Private equity operations slowed in the first half of last year, but Yamada said the pace was accelerating in 2021. “The number of transactions we’re seeing is definitely bigger than the 2019 and the second half of 2020, ”he added.
According to Dealogic, this year there have been 25 private equity and other similar investments in Japanese companies worth $ 8.6 billion this year, compared to operations worth $ 9.5 billion throughout 2020 and $ 10.3 billion in 2019.
Large companies like Hitachi and Panasonic would continue to be under pressure from shareholders to sell non-core assets, Yamada said. But he added that about half of Carlyle’s offers would emerge issues of succession, as an excess of retirements in companies caused many to consider previously unlikely options, including private equity sales.
Government pressure globally for companies to reduce their carbon emissions is also expected to force companies to buy new technologies and withdraw from traditional, environmentally friendly areas. “This will clearly be an investment opportunity for us,” Yamada said.
Carlyle abandoned its investment in WingArc1st in March after the software company launched a first public offering on the Tokyo Stock Exchange. This marked his 18th departure from a Japanese company, eight of which have gone through IPOs.
Public lists remain the preferred option for many of the top executives Carlyle has dealt with in Japan and are important to companies ’reputation, Yamada said.
“It is very important that future marketing be known as a fund that will allow IPOs,” he said, although going out later and taking risks is more than selling to a competitor for private equity groups.
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