Carlyle’s Japanese business chief predicted new growth in private equity business post-Covid business environments and increasing pressure on companies to achieve carbon neutrality forces a wave of acquisitions and spin-offs.
Kazuhiro Yamada told the Financial Times in an interview that the pandemic accelerated the sale of assets and the purchase of new technology among Japanese companies that may have taken years to make such decisions.
“Consumer behavior and [the] the business model has changed drastically because of Covid-19, so the companies that have been hit have no choice but to make structural reforms, ”Yamada said, adding that the availability of affordable deals from Japanese megabankers has made that the environment is particularly attractive to private equity.
A post-pandemic boost will be based on the excitement that has attracted the world’s largest private equity firms in Japan. Many groups, including KKR, believes that the country is the richest market of opportunities outside the United States.
The average size of the PE business in Japan is growing but Carlyle has focused on smaller ones, often involving companies with which it has been in negotiations for several years. Since 2000, Carlyle, which has been in the country for more than two decades, has invested more than $ 3.2 billion in 27 Japanese companies.
Bain & Co., the consulting group, has calculated that private equity firms collectively hold a record $ 477 billion of unused capital focused on the Asia-Pacific region by the end of 2020.
Private equity business activity slowed in the first half of last year but Yamada said the pace will accelerate in 2021. “The number of deals we see is certainly greater than in 2019 and the last half of 2020, ”he added.
According to Dealogic, there have been 25 private investments and other similar types of investments in Japanese companies worth $ 8.6 billion this year, compared to the $ 9.5 billion offer in the whole year. 2020 is $ 10.3 billion in 2019.
Great companies like that Hitachi and Panasonic will continue to come under pressure from shareholders to sell the non-core assets, Yamada said. But he added that about half of Carlyle’s bidding pipeline will come from succession problems, As a glut of retirements in businesses has encouraged many to consider unlikely options before, including sales to private equity.
Global government pressure for companies to cut their carbon emissions is also expected to force companies to buy new technologies and withdraw from traditional areas that are not environmentally friendly. “This will clearly be an investment opportunity for us,” Yamada said.
Carlyle dropped its investment in WingArc1st in March after the software company launched a first public offering on the Tokyo Stock Exchange. That marked his 18th exit from a Japanese company, eight of which were through IPOs.
The public listing remains the preferred option for many of the top executives Carlyle has dealt with in Japan and are important to reputation for companies, Yamada said.
“It is very important for future marketing to be known as a fund that will enable IPOs,” he said, although going out via an IPO is more consuming and risky than selling to a competitor for private equity groups.
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