As the number of take private deals in Japan continues to grow, the nature of some of those deals is undergoing a tectonic shift.
What we are witnessing in some cases is the dismantling of traditional, friendly, and often under-priced transactions agreed between management and a PE fund, in favour of a more raw, Western-style battleground for value.
We have moved into an era of genuine, hyper-competitive and public bidding wars between aggressive PE firms. This is supported by the presence of shareholder activists on the register who exert pressure to achieve the best possible sale price. This is pushing deal premia higher and delivering returns for investors.
Consider the recent dynamics:
- Kakaku.com (Tabelog Operator): Just days after EQT launched an agreed public take-private tender offer, Bain Capital allied with LY Corp and made a private offer to Kakaku.com’s board at a premium to EQT’s deal. This was promptly leaked to the press, and was soon followed by Bain & LY Corp publicly confirming an offer at ¥3,232 per share, compared with EQT’s deal at ¥3,000. $15bn AUM activist Oasis is a big Kakaku.com shareholder.
- Mandom: CVC Capital Partners initially pitched an MBO to privatise the cosmetics maker. The activist Murakami family accumulated over 20% of the stock, blocked the low-ball bid as undervalued, and forced a market solicitation that drew in KKR. The result? CVC had to aggressively sweeten its bid, eventually closing the deal at a
massive ~60% premium over the initial valuation.
- Fuji Soft: A public bidding war between KKR and Bain Capital resulted in a major uplift in the deal process for shareholders.
The “Activist-to-PE” Pipeline
Historically, a Japanese board could easily ignore a minority activist. But today, activists are acting as the origination engine for private equity. On the other hand, activists are also disrupting the sweetheart-deal-with-management system that PE firms used to benefit from – at least where the shareholder register is open to being influenced.
The days of quiet, discounted deals made with management teams unconcerned about the price shareholders receive appear to be over. This is a great development for public market investors in Japan.
