Private Equity Grabs Japan’s Carve-Out Opportunities

When Blackstone signed an agreement to buy Takeda Pharmaceutical’s consumer healthcare business in late August for ¥242 billion ($2.3 billion), it proved that one of the most dynamic trends in M&A was intact despite the disruption of Covid-19.

That is the trend for large Japanese corporations to divest businesses that aren’t core to them, with international private equity houses cashed-up and eager to pick them up.

It is a big relief for local and international investment bankers in Japan, who have seen other forms of cross-border M&A fall away as the virus persists.

It is also a healthy development, representative of another theme. Japanese conglomerates are finally listening to investors, particularly activists, and streamlining themselves to be leaders in the one or two things they are really good at, rather than just being competent at everything and focused on nothing.

Private equity firms have been excited about the potential in Japan for several years.

The Japanese buyout fund that Carlyle raised in March, at ¥258 billion ($2.4 billion), was the firm’s fourth, and its Tokyo office has been open for 20 years. By the end of 2019 it had made 25 investments in Japan through its buyout funds and 18 exits.

Bain, KKR, CVC, Apollo and Blackstone are all in Japan and in force.

Over time these firms have participated at steadily greater scale. Toshiba’s sale of its semiconductor business to a group led by Bain Capital, announced in 2017, was an unprecedented $18 billion deal.

And steadily, this confluence of strategic corporate carve-outs and a growing mountain of dry powder has become a regular fixture of the Japanese business landscape.