Many analysts and buyout pros agree Japan is currently a hotbed, prime for LBOs and M&A activity. But due to high startup costs, it’s an A-list party only the biggest players attend. The Carlyle Group, with its latest deal, however, has proven that there’s plenty of action in the Land of the Sun.
The Washington-based firm has signed a memorandum of understanding to acquire Colin Corp., a medical device manufacturer based in Komaki, Japan, and take control of the company once it emerges from Minji Saisei Hou, Japan’s version of Chapter 11 proceedings.
Since the deal probably won’t be finalized until late 2003 or early into next year, mum’s the word from both camps regarding financials. But it’s important to Colin Corp. that customers are aware a private equity firm with Carlyle’s global presence is involved early on. “Bankruptcy is looked at differently over there, the rules and regulations are much more flexible in the U.S.,” said a private equity source who’s worked in Japan. “It’s such a negative image for Japanese companies going though it, that customers generally look elsewhere for suppliers when they hear about a company in Chapter 11. Getting a firm like Carlyle behind them gives them much needed credibility.”
According to Ken Albolote, Carlyle’s vice president in charge of telecom, media and technology buyouts in Japan, Colin Corp. is already a well-known and oft-contracted vendor. “They are the top supplier of non-invasive blood pressure and patient monitor equipment in Japan,” he said. “Colin is an excellent platform for us to establish a foothold in the sector-it’s a good space to get into [in Japan].” He cited the country’s aging population and universal health care model (akin to Canada’s) as reasons to invest in the sector.
An aggressive push of a product designed for the treatment of arteriosclerosis (hardening of the arteries) is what some point to as a cause of Colin Corp.’s financial woes. Apparently, the company pushed the product too hard and too fast onto distributors, causing an excess in inventory, which helped tip the ledger into the red.
Carlyle’s latest Japanese target filed for bankruptcy July 14, which drew an abundance of strategic and private equity entities looking into purchasing the company. By Sept. 24, however, the list was down to one, and if all goes as planned, after 60 to 90 days of due diligence, Carlyle will have added a fifth Japanese company its portfolio.
Albolote hopes the Colin Corp. deal is the harbinger of things to come. “[Health care in Japan] is a stable industry and [Colin] has a stable market share,” he said. “We’re hopeful this will lead to similar deals…that enhance our global health care portfolio.”