With opportunities in China and Japan beckoning, and its employee count growing in both countries, Bain Capital has decided now is the time to launch a debut Asian fund with a cap of $1 billion.
In a letter dated Friday, Dec. 1, the Boston buyout shop asked investors in its ninth core fund, a $10 billion pool closed earlier this year, to fill out an “interest form” recording how much money they’d like to commit to the Bain Capital Asia Fund. The letter cautions that “allocations could be quite tight if everyone elects to participate.”
Bain has been making a push in Asia for some time, adding offices this year in Tokyo and Shanghai to the one it opened last year in Hong Kong. Manning those offices are 27 investment professionals, including six managing directors. Bain Capital has more than 250 investment professionals and some 46 managing directors working on investments in offices worldwide.
One aim behind the Asian expansion has been to help Bain portfolio companies navigate opportunities to outsource operations and to expand into new markets. “Every deal we touch these days has some sort of Asian angle,” says a source at the firm. Another reason for the push has been to profit from investments. About $130 million from fund IX has gone into three Asian deals. They include the spring acquisition—co-invested with Advantage Partners—of MEI Conlux, a Japanese company that makes coin and paper-money reading machines used in candy dispensers and self-check-out counters at stores.
For the most part, Bain plans to invest $25 million to $85 million at a time from the Asian fund in two kinds of deals. In China, it plans to take minority or majority interests in young, fast-growing companies that need money to help sustain that growth. In Japan, by contrast, it plans to acquire more mature, mid-sized companies producing stable cash flow, as well as divisions and subsidiaries of corporations looking to divest.
The pipeline of opportunities is larger in China, says one source says, but “You’ve got to sort through a lot of junk,” he says.
Bain may also undertake, on occasion, a far larger transaction in Asia—the kind requiring an equity check of $500 million or more. Given a self-imposed investment cap of $85 million on the Asia fund, the firm intends to draw upon money from fund IX or successor funds to consummate larger deals. The Asia fund may also find a role co-investing alongside its European and U.S. funds in deals that have a “particular Asian aspect to the transaction,” the letter to prospective investors said.
Expect Bain’s debut Asian fund to close in the first quarter of 2007. The terms and conditions proposed are the same that Bain secured on fund IX.
In 1998, Bain became one of the first private equity firms to advance to a 30 percent profit-share, up from the traditional 20%, when it raised its sixth domestic buyout fund.