When KKR & Co. offered almost $4 billion for a Japanese IT consulting company back in August, the proposal generated buzz in the country’s burgeoning buyout market.
What came next was unprecedented. Bain Capital made a public rival bid for Fuji Soft that was 7% higher, a move that one dealmaker likened to a last-minute extra inning in baseball. It set off a rare open tussle between the private equity giants that has shocked investors.
„I’ve seen lots of private equity activity in Japan. I cannot remember two large firms in a bidding war for an asset of this nature,” said Howard Smith, a portfolio manager at Indus Capital Partners.
In Japan, even aggressive global private equity managers have preferred a low-key approach to dealmaking, mindful of the need to manage rosier reputations steadily built up after years of being locally seen as vultures.
Less so with Fuji Soft. Both KKR and Bain embarked on bold campaigns to make the case for their bids. KKR touted the support of Fuji Soft’s board and hedge fund shareholders, while Bain’s higher bid — along with backing from the Yokohama-based company’s founder — loomed large. Finally, KKR last week raised its price to ¥1 above Bain’s per-share offer, after which the board recommended against the latter’s proposal, essentially sealing the deal.
The saga shows how fast the private equity landscape is changing in Japan, where more than $12 billion in such transactions have been announced this year, after reaching a record in 2023, according to data compiled by Bloomberg. Analysts and investors say the battle over Fuji Soft will encourage hungry dealmakers to use bolder tactics in their pursuit of takeover targets.
„There’s going to be more of these types of deals with the existing players,” said Jun Tsusaka, chief executive officer of Nippon Sangyo Suishin Kiko, a Japanese private equity firm that focuses on medium-sized deals. „This is all indicative that the code of conduct that we thought existed in Japan, which is that you can’t do things Western style — that conventional wisdom is now thrown out the window.”
Japan has seen a flurry of recent action even outside of the private equity space. Seven & I Holdings is looking to take itself private in a potentially record ¥9 trillion ($58 billion) management buyout as it fends off interest from Canada’s Alimentation Couche-Tard. Meanwhile, Sony Group is exploring a takeover of Tokyo-based publisher Kadokawa, people familiar with the matter said this week.
Foreign private equity firms have long viewed corporate Japan as ripe for disruption, considering the abundance of high-quality businesses with cheap valuations and outdated practices. Recently, that opportunity began to bear fruit as corporate governance reforms took hold and companies became more receptive to change — whether by going private or selling off noncore businesses.
„It’s a sign of how the market for corporate control is becoming more liquid, and how management in Japan are becoming more receptive to this kind of privatization,” said Smith at Indus Capital.
The weak yen and low borrowing costs have added to the appeal, and firms like KKR and Blackstone have made recent pronouncements about betting big on Japan.
„If you look at our global private equity returns in every single country around the world, our best returns are in Japan,” Joseph Bae, co-CEO of KKR, said at a forum in Hong Kong this week. „We’re still very bullish in this part of the world, and we’ve got a lot of growth ahead of us.”
KKR and Bain’s public competition for Fuji Soft also suggests lingering challenges for foreign investors in a country where marquee deals remain elusive. Some of the largest private equity-related transactions in Japan last year — such as the ¥2 trillion privatization of Toshiba and the ¥904 billion sale of chipmaking materials linchpin JSR — went to domestic funds.
That, in turn, has made private equity firms, many with fresh capital from recent fundraising rounds, keener to chase rare big deals on the market. During the Fuji Soft sale process, firms like Blackstone and MBK Partners were among the final contenders, people with knowledge of the matter said.
It’s likely that buyout firms will have to compete with an increasing number of domestic and foreign companies wanting to acquire in Japan, Tsusaka said.
The value in Fuji Soft also lies in its trove of human capital and real estate. The company owns a large portfolio of offices around Tokyo, where rising real estate prices provide the potential to unlock value by selling the properties. Fuji Soft’s human capital — it has over 9,000 employees in a business segment that offers IT solutions for clients — is also attractive in a country facing demographic challenges and a shortage of skilled labor around technology and engineering, according to investors.
The deal was also noteworthy for the presence of activist investors. Singapore’s 3D Investment Partners had pressured Fuji Soft to go private to realize value.
„A lot of it was instigated by hedge funds that said this company is worth more and management needs to do something, and that led to an actual transaction taking place,” Tsusaka said. „Five to 10 years ago, this would’ve never happened.”