The Carlyle Group closed its first Japanese fund, Carlyle Japan Partners, LP, as the winds of change have begun to stir up a budding private equity industry in the land of the rising sun.
The firm raised $469.3 million, 58% of which came from Japanese institutional investors, to be spent solely in Japan. It has already bought out three companies. The first, Asahi Security Co., a cash management and electronic security services provider, was acquired for $69 million in equity, with an additional $45 million in debt. It also bought Kito Corp., a hoist and crane manufacturer, for $35 million in equity and $80 million in debt. And lastly, Carlyle bought, Colin Corp., a medical device company, for $37 million in equity and $51 million debt.
“The companies we’ve already purchased have done very well as far as meeting and exceeding revenue targets and paying down debt,” said Chris Ullman, a vice president and spokesman for Carlyle.
Long mired in economic stagnation, the business climate in Japan is now undergoing a focused rehabilitation subsidized in part by a government entity called the Industrial Rehabilitation Corporation (IRC). Banks are being pressured to solve non-performing loan issues, while companies are shedding non-core assets and concentrating more on profitability and efficiency. The trend has emboldened investors looking for good buys in the Japanese marketplace and given birth to a slew of buyout transactions that would have been unimaginable there just five years ago.
“While in the past, Japanese companies were perhaps more inclined to just stick it out and muddle their way through a losing situation, we’re finding now that these companies are amenable to either being bought out, or teaming up with outside investors like Carlyle,” said Ullman.
Prior to now, Carlyle has never completed a successful LBO exit in Japan, a place where, historically, exits from private investments have been difficult to come by. But the firm was encouraged after emerging victorious from a big gamble taken in August 2001 when it sank $26 million into the Japanese Internet access provider, eAccess, as a venture deal. At the time, most telecom startups teetered on the edge of extinction, but the move paid off for Carlyle last October when eAccess went public and its shares rose 61% in the first day. A week later, the firm’s investment had tripled in value.
Ripplewood Holdings was the first buyout firm to make its way to Japan. It acquired bankrupt Long-Term Credit Bank in March 2000, the financially troubled audiovisual equipment maker Nippon Columbia Co., and a failed resort complex, giving the firm significant traction in the market. But, while Ripplewood is focused on turnarounds, Carlyle will set its sights on management buyouts of companies that have shown some operational success.
“Carlyle can really add value because of our management expertise and the global resources that we bring to the table-especially in terms of potential new markets for a companies products,” said Ullman. “We’re not just coming in and taking over a company and kicking people out-that’s not what we do.”
Carlyle has a team of experts on the ground in Japan managing the fund. With intimate knowledge of the terrain and culture in the area, they intend to find opportunities opening up as companies grow more comfortable with risk-taking and banks warm up to private equity investments.
“Investors and business people there are becoming more amenable to a more western way of dealing with tough economic and business times,” said Ullman, “which is acknowledging them and taking very decisive action.”