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Foreign Investment Funds on Shopping Spree in Japan

Japanese corporations may be busy in the Association of Southeast Asian Nations (ASEAN), but foreign investment funds—mainly from Western countries—are just as busy in Japan, snapping up small and mid-size Japanese companies.

Private equity (PE) behemoths such as Bain Capital, KKR, and the Carlyle Group spent billions of dollars in Japan in 2014. And the trend does not seem to be curtailing.

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Nikkei Asian Review is reporting that while Japan is well accustomed to hostile buyouts and extravagant spending from international funds, the approach seems more “low key” this time around, and with a focus on cooperation.

This new effort of cooperation is apparently succeeding by revealing the structural issues and limits to growth that the international funds are helping the companies solve. Instead of a heavy-handed approach to solving such problems, compromise seems to be the key to success for both sides.

Before the financial crisis of 2007–08, these funds had the cash and the upper hand in the global M&A arena. But after the crash—and the quantitative easing (QE)—that followed, competition became fiercer and prices exploded.

Now even the big boys are forced to focus their attention downward to small and mid-size companies. Many such deals are even taking place in the shadows to avoid competition and bidding wars.

At a party in Tokyo’s Shibuya Ward this past March, KKR celebrated the launch of Pioneer DJ into their portfolio of investments. The U.S.-based fund acquired Pioneer’s DJ equipment business for ¥59 billion (US$492). According to KKR Japan’s CEO Hirofumi Hirano, the group intends to acquire other related businesses as well.

The funds are supposedly focusing on revitalizing the companies they have acquired instead of the slash-and-burn model so popular before the Lehman Brothers debacle. This makes it easier for Japanese companies to realistically consider these buyouts, too, as most (if not all) are not exactly comfortable with the idea of a foreign PE firm taking control of them. Yes, even if their situation is quite dire.

While it is certainly nice to see these infamous PE giants taking a more sustainable and culturally sensitive approach to doing business in the region, it is also not much of a gamble to say that the barbarians are probably still at the gate, simmering there under the surface. Old habits often prove difficult to change after all.