Permira makes first Japanese acquisition

European supremo Permira has cemented its expansion outside of Europe with its first Japanese acquisition.

The pan-European private equity group has acquired agri-chemicals group Arysta for €1.55bn, two years after opening an office in Tokyo.

“We see Japan as an interesting emerging private equity market,” said Chris Davison, a spokesman for Permira Advisors. He explained that more investment opportunities could emerge as the country’s traditional conglomerates begin to shed non-core businesses.

Japanese companies are increasingly adopting Western style practices on corporate governance and more groups are focusing on enhancing shareholder returns. Also, cross-shareholdings between groups are being unwound, making it easier to bid for Japanese companies.

Takeovers of Japanese companies by foreigners so far this year are valued at about US$28bn, triple last year’s figure. The country has more than over 6,000 stock market listed companies, many of which are undervalued, according to analysts.

In anticipation of these changes and an improving economic climate, most of the big private equity players have established offices in the country.

Japan has come a long way in its attitudes towards private equity since Ripplewood bought Long-Term Credit Bank of Japan in 1999. However, deal flow is likely to remain slow for a while as Japan’s corporate culture is still in the process of transformation.

Although Japan has seen plenty of M&A activity in recent years, private equity accounts for just 8% of deals, compared with a global average of 25%. Analysts said there was still some resistance to the idea of purely financial groups buying non-financial companies.

Meanwhile, the emergence of domestic private equity firms and strategic buyers is providing plenty of competition for any assets that do come to market.

The purchase of Arysta, which is the world’s 10th largest agri-chemicals group, is also the largest buyout deal in Japan so far this year.

Permira apparently saw off rivals Bain Capital and Advantage Partners in its quest to bag Arysta. The group is being sold by another private equity concern, Olympus Capital.

“We like Arysta because it is a complex business – it’s just the kind of deal we like,” explained Davison. “It sells 125 products in over 100 countries.”

He added that the company had excellent growth prospects and could at a later stage play a role in the ongoing consolidation of the agri-chemical sector.

Specialist private equity investor, SVG Capital, which is being advised by Permira, will invest US$262m in the Arysta deal.

The deal is Permira’s second Asian acquisition. The first took place on October 11 and involved the purchase of 20% of Galaxy Entertainment, one of Macau’s licensed casino operators.

Justin Pugsley