Much has changed in Japan since the first high-profile private equity deal in the country — Ripplewood’s acquisition of the Long-Term Credit Bank in 2000 — created uproar, reports the FT on Friday.
The emotional, almost xenophobic, reaction to private equity investments at the time has given way to greater acceptance of the role such investors can play in restructuring corporate Japan. However, Japanese companies still resist the idea of being bought out by an investment fund and so there has been a dearth of deals available to the large private equity firms that have descended on Tokyo in the past few years.
Nevertheless, Japanese companies are slowly starting to see the benefits of working with private equity funds, which can provide financing as well as management expertise. Last year, Cerberus made an Y88.7bn ($73.7m) investment in Seibu Holdings, the conglomerate, and CVC took part in the Y94bn management buy-out of Skylark, the family restaurant chain. And not to leave out home-grown investors, Advantage Partners was involved in the MBO of Rex Holdings, the acquisition from the government-sponsored Industrial Revitalisation Corporation of Daiei, the troubled retailer, and the acquisition of Kanebo, the collapsed cosmetics group.
Meanwhile, a new law allowing so-called ‘triangular mergers’ hit the statute books on Tuesday, reports the Japan Times. A triangular merger would be the acquisition of a Japanese firm via a share swap with another Japanese firm that is 100 per cent owned by a foreign entity. It was supposed to come into force last year but was delayed after an outcry from Japanese companies who feared a rash of buyouts, the report notes.
The Japan Business Federation believes that the legal system in Japan cannot stand up to the challenge of protecting firms and their investors from hostile bids that could erode value. Theoretically, a hostile play is not easy under the new rules since any deal still needs the consent of the target’s management and investors, but if an overseas firm launches a tender offer and ends up with a majority – and with it the ability to install friendly management – then its chances improve. However, it remains to be seen whether the costs involved will attract interest in the new system.