Driven by a merger and acquisition boom and the nation’s longest period of economic growth since World War II, Japan’s private equity market is seeing rapid growth. Anthony Fensom reports.
TOKYO, Japan, September 3, 2007 (Investor TV) – Driven by a merger and acquisition boom and the nation’s longest period of economic growth since World War II, Japan’s private equity market is seeing rapid growth.
The number of mergers and acquisitions involving Japanese firms has quintupled in the 10 years to 2006, with the boom showing no signs of losing steam.
However, while the deal flow has soared, private equity’s share has been low. In the first six months of 2007, private equity funds only accounted for eight per cent of M&A deals – well below the global average of 25 per cent.
Industry pioneer Hitoshi Suga, who founded trading house Mitsui Group’s private equity arm, MVC Corporation, in 1996, tells InvestorTV that the industry still needs to overcome some negative perceptions.
“The Japanese private equity market is growing, however the perception towards the private equity business in this country is still not very clear,” he says.
“That’s partly because Japanese do not really believe in pure financial transaction business, the securities brokerage business or even the investment banking business as serious industries at all.”
According to Suga, who consults to numerous start-up companies, including Tully’s Coffee Japan, private equity is still finding its proper place in Japan’s business hierarchy.
“Japan is basically a manufacturing, service-orientated country. There is a very strong hierarchy with the government at the top, manufacturing and service companies second or third, and trading companies somewhere in between.
“Then comes the financial sector, and this is always with banks above securities brokerages and investment banks. Therefore, many people perceive private equity businesses as a derivative of the securities brokerage or investment banking business.
“So I don’t believe they have established their status in this country yet, although there have been numerous major private equity funds in the world and domestically, coming into this very wealthy economy,” he says.
Suga said such perceptions made it difficult for private equity to gain a large portion of the market. Observers have pointed to a fear of change and traditionally tight business networks that shut out outsiders, with many only turning to private equity as a last resort.
On the plus side, Suga pointed to the ready availability of cash and a large pool of investors looking for opportunities.
“In this country, promising start-up ventures are not large in number - you really have to look for them,” he says.
“Regardless of the nationality of such businesses, I think it’s very easy for any high growth, promising company to get funding from either venture capital, or to some extent through private equity funds, because so many investors, venture capital companies or private equity funds, are chasing after too few good opportunities.”
Asked what critiera he uses to make his own investment decisions, Suga said the “quality of management” rated much higher than any fancy Excel spreadsheet presentation.
He pointed to Tully’s Coffee as an example, where the founder worked day and night to get the first café up and running, even bringing his sleeping bag to the Ginza store.
“Venture capital and private equity companies are interested in investing in new businesses,” he said, pointing to the service industry and Internet firms as an example.
While the market may be slow to grow, Suga says foreign investors should open their eyes to the opportunities in the world’s second-biggest economy.
“Unlike the perceptions many foreigners have, Japan is open to high quality products and high quality services which haven’t been very popular in this country before,” he says.
“Therefore, if you have the right product or right service, and you have a good local partner to promote that, the chances are that you’ll get a lot of support from many players.”
© InvestorTV
The number of mergers and acquisitions involving Japanese firms has quintupled in the 10 years to 2006, with the boom showing no signs of losing steam.
However, while the deal flow has soared, private equity’s share has been low. In the first six months of 2007, private equity funds only accounted for eight per cent of M&A deals – well below the global average of 25 per cent.
Industry pioneer Hitoshi Suga, who founded trading house Mitsui Group’s private equity arm, MVC Corporation, in 1996, tells InvestorTV that the industry still needs to overcome some negative perceptions.
“The Japanese private equity market is growing, however the perception towards the private equity business in this country is still not very clear,” he says.
“That’s partly because Japanese do not really believe in pure financial transaction business, the securities brokerage business or even the investment banking business as serious industries at all.”
According to Suga, who consults to numerous start-up companies, including Tully’s Coffee Japan, private equity is still finding its proper place in Japan’s business hierarchy.
“Japan is basically a manufacturing, service-orientated country. There is a very strong hierarchy with the government at the top, manufacturing and service companies second or third, and trading companies somewhere in between.
“Then comes the financial sector, and this is always with banks above securities brokerages and investment banks. Therefore, many people perceive private equity businesses as a derivative of the securities brokerage or investment banking business.
“So I don’t believe they have established their status in this country yet, although there have been numerous major private equity funds in the world and domestically, coming into this very wealthy economy,” he says.
Suga said such perceptions made it difficult for private equity to gain a large portion of the market. Observers have pointed to a fear of change and traditionally tight business networks that shut out outsiders, with many only turning to private equity as a last resort.
On the plus side, Suga pointed to the ready availability of cash and a large pool of investors looking for opportunities.
“In this country, promising start-up ventures are not large in number - you really have to look for them,” he says.
“Regardless of the nationality of such businesses, I think it’s very easy for any high growth, promising company to get funding from either venture capital, or to some extent through private equity funds, because so many investors, venture capital companies or private equity funds, are chasing after too few good opportunities.”
Asked what critiera he uses to make his own investment decisions, Suga said the “quality of management” rated much higher than any fancy Excel spreadsheet presentation.
He pointed to Tully’s Coffee as an example, where the founder worked day and night to get the first café up and running, even bringing his sleeping bag to the Ginza store.
“Venture capital and private equity companies are interested in investing in new businesses,” he said, pointing to the service industry and Internet firms as an example.
While the market may be slow to grow, Suga says foreign investors should open their eyes to the opportunities in the world’s second-biggest economy.
“Unlike the perceptions many foreigners have, Japan is open to high quality products and high quality services which haven’t been very popular in this country before,” he says.
“Therefore, if you have the right product or right service, and you have a good local partner to promote that, the chances are that you’ll get a lot of support from many players.”
© InvestorTV
