Private equity giants derided as vultures eye breakthrough in Japan

BUSINESS

Private equity giants derided as vultures eye breakthrough in Japan

Construction at the site of a Toshiba Memory Corp. plant in Yokkaichi, Mie Prefecture, in 2017. That year, Toshiba sold its chip unit to a Bain Capital-led group. | BLOOMBERG

By Takako Taniguchi, Min Jeong Lee, Takashi Nakamichi and Manuel Baigorri
Bloomberg

Jun 22, 2022

For years, private equity giants have worked to change a damaging public perception in Japan: that they’re “vultures,” hacking companies apart and gorging on their remains.

Now, Toshiba is giving the buyout industry an $18 billion opportunity to see whether those efforts have paid off.

The troubled Japanese conglomerate is soliciting acquisition offers — and other proposals — as it seeks to end years of mismanagement. Bain Capital, Blackstone Inc. and CVC Capital Partners are among the funds considering bids. A successful deal, which may be private equity’s largest ever in the country, would signal the once-criticized investors have become more accepted in Japan.

But that remains far from certain. Toshiba directors have been disagreeing publicly over the company’s future, and the Japanese government, which deems the firm’s nuclear power business critical to national security, would have to sign off. What’s less in doubt is private equity has made progress in improving its reputation in Japan.

“Things are starting to change,” said Kazuhiro Yamada, head of the Japan buyout advisory team at Carlyle Group, the U.S. investment house that manages $325 billion in assets. “Before, it was hard for private equity firms to even make an appointment,” he said. “Now, companies are increasingly approaching private equity.”

The number of deals involving private equity funds hit an all-time high of 134 in Japan last year, according to the consulting firm Bain & Co. The value of transactions more than doubled from the previous year to about ?2.7 trillion ($20 billion), close to the record from 2017. Shiseido and Hitachi, both founded more than a century ago, sold parts of their business to private equity last year.

Even the government says private equity has changed in Japan. In the first half of the 2000s, many private equity firms “sought to increase the value of companies over the short term through debt workouts,” a representative of the Ministry of Economy, Trade and Industry’s Industrial Finance Division said in emailed comments. These days, they try to raise the value of companies over the medium to long term, mainly through overseas expansion, business diversification or acquiring other companies in the same industry, the official said.

That’s a far cry from the early years of the century, when one buyout, in particular, shaped the image of private equity firms in Japan. In 2000, a consortium led by Ripplewood Holdings bought the collapsed Long-Term Credit Bank of Japan (now Shinsei Bank) from the government for a price that was considered low. Ripplewood made a big profit when Shinsei listed in 2004. The deal angered the Japanese public, especially as the state cleaned up the bank’s bad debts.

Foreign investment funds became labeled as ”hagetaka”...