September 28, 2012

Brightrust Buyout Monthly For July-Sept 2012

The July-September issue covers;
  • Unison's $1 billion Sushiro exit,  foreign funds sweep large deals 
  • Unison invests in Korean battery company
  • Polaris invests in a unique housing company
  • Fortress acquires a troubled debt-collection company and its parent consumer finance company 
  • JIS invests $190 million in a semiconductor fabrication maker under reconstruction
  • ACA and Sompo Japan invest in an elderly care home operator
  • JIP buys a mobile phone seller from Olympus Corporation for $680 million 
  • Permira buys Japan's top-selling belt-conveyer Sushi restaurant from Unison
  • Next buys a 40-year-old cooking school operator for turnaround
  • Jupiter Shop Channel, 50% owned by Bain, expands into Thailand
  • Aozora managed to push back Gov't takeover deadline, but Cerberus will sell its 50 % stake
  • Carlyle postponed the listing of Tsubaki Nakashima
  • INCJ invests in a high-tech battery JV with 3 Japanese companies
  • iSigma sells a fruit juice maker to a strategic buyer
  • Advantage will hand over its restaurant chain investment to a strategic buyer
  • J-Star sells a silver-focused mail order company at a high multiple
  • Nippon Mirai divests a restaurant information service provider
  • DRC exits from its 5.5 year old PIPE deal 
  • State-backed ETIC makes $4 billion profit from Japan Airlines turnaround
  • KKR may lose $1.3 billion chip maker deal to a Japan consortium led by INCJ
  • Tokyo Metropolitan Government appoints 2 infrastructure managers
  • Japan's largest public pension will study implementation schemes for its PE investments,  etc.
If you are interested, please send email to with your name and contact details.

Cerberus To Sell Its 50% Stake In Aozora Bank

Aozora Bank has told media that its majority shareholder Cerberus Capital Management LP will sell some of its holdings in the bank in the planned buyback that was announced by Aozora a month ago and it may also begin selling the remainder in 2012 through the capital market or off-exchange direct transactions.

On August 27, Aozora Bank agreed with the Japanese government to repay public funds in installments over the next decade to push back the mandatory conversion of the preferred shares owned by the Government until 2022. When the government injected public funds into the bank in 1999 and 2000, the state received convertible preferred shares worth JPY 320 billion (USD 4.1 billion), of which JPY 180 billion worth remain outstanding. Aozora announced that it would reduce its capital base from JPY 420 billion (USD 5.4 billion) to JPY 100 billion, buy back about 20% of shares issued and boost its dividend payout from 30% to 40% of earnings.

September 24, 2012

KKR May Lose Renesas to a Japan Consortium Led by INCJ

Major Japanese manufacturers have teamed up with a government-backed Innovation Network Corporation of Japan (INCJ) to put together a rescue package for Renesas Electronics Corp. (6723). According to The Nikkei, the consortium led by INCJ will include Toyota, Nissan, Honda, Panasonic, Cannon, Fanuc, Denso, Keihin and possibly Bosch. It plans to invest more than JPY 100 billion (USD 1.28 billion) to acquire a majority stake in Renesas by the end of the year.

Renesas is one of the world's top producers of microcontrollers used in automobiles, consumer electronics and  industrial machinery. Some of its cutting-edge custom-made products are hard to replace with those from other manufacturers. The concern over ensuring the supply of these microchips apparently alerted the manufactures and INCJ and prompt them to submit a rescue proposal.

In late August, KKR proposed investing about JPY 100 billion in Renesas. Major lenders and major shareholders - NEC, Hitachi and Mitsubishi Electric - were ready to accept at one point. But the manufactures were wary that microcontroller supplies could be disrupted as they learned that KKR is likely to direct Renesas to focus on mass-production of generic chips. As conditions for its investment, the U.S. firm is said to have sought the removal of Renesas' entire board as well as additional loans from the lenders and three shareholders, who have already provided JPY 100 billion to Renesas to enable large-scale restructuring, entailing roughly 5,500 job cuts as well as the sale and closure of 19 domestic plants.

(Pls also see our post on August 29th.)

September 21, 2012

iSigma's Sale of Gold-Pak to Air Water To be Completed This Month

iSigma Capital's sale of its 100% stake in Gold-Pak, a fruit juice maker, to Air Water Inc. will be completed at the end of this month. The news was released in mid-August. Air Water is an industrial gas production company with USD 2 billion market cap. However, 2/3 of Air Waters sales are from non-Gas business. iSigma acquired a 92.6% stake of Gold-Pak through a tender offer in January 2011. The fund spent JPY 4.5 billion (USD 57million), of which JPY 1.5 billion was borrowed from Aozora Bank. We estimate the entry EBITDA multiple was around 3.5x (after paying a 56% premium).
Little financials are available regarding the exit of this time. According to Air Water's press release, Gold-Pak's sales, which had been falling in the preceding years, were stable at around USD 500 million in 2011 and 2012. Today Air water shares are trading at PER 10. As the entry price was low, even a sale at PER 7 (a random assumption) would have brought 1.5-2.0 x return to the iSigma fund.

September 20, 2012

The Enterprise Turnaround Initiative Corp of Japan Pocketed USD 3.8 Billion Profit From Japan Aiirlines' Re-Listing

Further to our post on August 3rd, Japan Airlines Co. is now re-listed at Tokyo Stock Exchange. This morning the carrier's market capitalization reached JPY 690 billion (USD 8.8 billion) making it the second largest IPO in this year only after Facebook. The Enterprise Turnaround Initiative Corp. of Japan supplied a total of JPY 350 billion (USD 4.5 billion) in support of the collapsed airline in 2009.  Today ETIC is cashing in JPY300 billion (USD 3.8 billion) profit for the benefit of tax payers.  There are some big deals in Japan. 

September 19, 2012

DRC Exits From Yumeshin Holdings At 1.5x

DRC Capital has sold its investment in Yumeshin Holdings, a staffing company specializing in construction workers. DRC invested JPY 920 million (USD 12 million) to acquire a 7.6% stake in the company in February 2007. Since the minority acquisition, DRC guided the company to focus on the core competence and helped restructure the swollen balance sheet. The GP believes the operational improvements have helped Yumeshin shares to out-perform peers and general equity market. This 5.5 year PIPE investment achieved 1.5x ROI with a gross IRR of 8.3% p.a..  During the corresponding period,  Nikkei Index fell by 49% (-11.3% p.a.) due to the Lehman Crisis and 3.11 Tohoku earthquake.

September 14, 2012

J-Star Exits From Elderly-focused Mail Order Business At A High ROI

On September 7th, J-Star announced that it has transferred all of the shares of Iki Iki K.K., a mail order business focusing on growing elderly population in Japan,  to NK Relations Co., Ltd., a wholly-owned subsidiary of Noritsu Koki Co., Ltd. Noritsu Koki has its origin as a manufacturer of film processing machines, but has been expanding business lines to include medical care, food and environments.

J-Star fund and its co-investors acquired Iki Iki in 2009 for about USD 13 million. As this was a turnaround investment under the Civili Rehabilitation Act, the entry multiple was extremely low and no leverage was used. According to a source quoted by PEI Asia, the sale price to Noritsu was approx. USD 100 million. J-Star CEO was quoted as saying "(During the holding period) EBITDA grew from $5.8 million to $12.5 million and net cash increased more than seven times to $18.3 million".

This is another example where operational improvement brought a significant ROI. "Silver Business" is the way to go.

Sushiro Will Bring $700 MM Profit To Unison II Fund

As is reported by several industry media, Unison Capital has announced that it will sell its entire stake (81%) in Sushiro, the top-selling revolving sushi restaurant chain in Japan, to an Irish investment company backed by Permira. Permira revealed that it was "valuing Sushiro at an enterprise value of approximately USD 1 billion".

Sushiro deal should be a home-run for Unison's second fund, which raised JPY 75 billion (USD 960 million) in 2004.

Unison acquired a 20% stake in the Sushi restaurant operator in 2007, increased its holdings to 90% by TOB in 2008 and took the company private in 2009. Unison paid approximately USD 285 million to acquire a 100% stake in Sushiro, of which US 170 million was financed by bank loans. After allocating 19% to the founder, we believe Unison spent approx. USD 100 million to finance the 81% stake (and associated cost). With USD 1 billion EV and no net outstanding debt, the deal will score approx. 8x ROI bringing USD 700 million profit to Unison II fund. Unison purchased Sushiro at 4x EBITDA, grew its EBITDA by as much as 3 times, and sold it at a very modest multiple.

This transaction shows foreign funds are increasing its presence in Japan. Large local funds, such as Unison, Advantage and Nomura Principal, used to own a lion's share in the large cap buyouts in Japan, but this in no longer the case. Bain, Carlyle and Permira have substantially benefited from the vacuum created in Japan's large cap space. Recent large transactions done by their Japan teams are secondaries bought from Japanese GPs without an exception.

September 12, 2012

Nippon Mirai Sold Gourmet PIA to Jorudan Co.

Nippon Mirai Capital announced that the mid-sized buyout firm has sold its holdings of Gourmet PIA Network Co., a restaurant-related information provider, to Jorudan Co., Ltd., a transportation-related information provider. Jourdan paid JPY 330 million (USD 4.2 million) to acquire a 100% stake in Gourmet PIA, which had a revenue of approx. USD 6 million with very small pre-tax losses in the past 3 years.  Nippon Mirai invested in Gourmet PIA in June 2005.

September 11, 2012

NEXT Capital Bought A Cooking School Operator For Turnaround

PE Asia reported that Next Capital Partners has acquired Tokyo-based cooking school operator Sunrich for JPY 500 million (USD 6.3 million).  Sunrich and its subsidiary Homemade Association run 114 cooking schools plus 150 franchise schools in Japan. The acquisition is a distressed investment and makes the first investment from the firm’s second fund. A second investment is expected in September, a NEXT spokeswoman  said.

September 10, 2012

Advantage Partner's Portfolio Company Rex To Be Taken By Colowide Via DES

Rex Holding Co, the holding company of several restaurant chains and a portfolio company of Advantage Partners, will become majority-owned by Colowide Co. (7616), the parent firm of several chains of Japanese-style pubs. Currently Rex is 32% owned by its founder and at least 55% owned by the funds advised by Advantage Partners.

Last Friday, Colowide announced that it will acquire a 66.6% stake of Rex through a debt-equity swap. Colowide has agreed to purchase outstanding bank loans from the lenders for JPY 13.7 billion (USD 175 million). While the total notional of the loans purchased was not disclosed, it should occupy a substantial part of Rex's USD 800 million liability (as of Dec 2012).

Aggressive business expansion in early-mid 2000s has caused Rex to suffer from heavy interest payments. Since Advantage funds acquired approx. 90% of the company in December 2006, Rex has been restructuring its business by selling convenience store chain operator am/pm in 2009, Red Robster in 2012 and super market chain Seijo Ishii in 2012. While the liability on its B/S was reduced by approx. USD 640 million between 2011 and 2012,  apparently it was not enough for the company to turn around. The sale of Seijo brought USD 215 million profit to Rex turning its pre-tax profit into black in 2012 , while the sale of am/pm in 2009 caused USD 95 million loss, according to Colowide's press release.

Advantage paid approx. JPY 7 billion to delist Rex from Tokyo stock exchange in December 2006. This deal will certainly pull down the performance of Advantage III fund eating up a portion of the large profit realized by the sale of Pokka Corp. last year.

Japan' s Largest Pension Fund to Study Alternative Investment Scheme

Last week, Government Pension Investment Fund, the largest public pension fund in Japan with USD 1.37 trillion AUM, collected proposals from the companies interested in conducting a research on the subject of "a possible alternative investment scheme at GPIF".  GPIF had announced a public tender a month ago and the tender winner is expected to complete the work by February next year.  In 2011, GPIF gave a research mandate on private equity to Towers Watson and another on infrastructure to Mercer through the same tender process.