Private equity deals still flow amid credit crisis

by Tomoko Yamazaki and Mariko Yasu

Bloomberg

Japan’s private equity market will see a “steady flow” of transactions even as rising funding costs cripple deals elsewhere, said the cofounder of the nation’s largest buyout fund.

“We’ve heard about the subprime effect in the United States and that leveraged buyouts have come to a halt,” Richard Folsom of Advantage Partners LLC said in a recent interview. “We’re seeing a steady flow of deals” in Japan.

Advantage Partners, with ¥340 billion in assets, completed the acquisition of Tokyo Star Bank this month and is looking for targets in health-care and manufacturing, Folsom said. The fund is sticking to its plan to invest in four companies a year, he said.

Japan’s private equity market is off to the best start this year since at least 2000, with $3.4 billion in deals announced since Jan. 1. Transactions have withstood the collapse in takeover financing that caused the value of deals globally to drop by two-thirds in last year’s second half from the previous six months.

In October, Cerberus Capital Management LP, the New York-based investment company, scrapped a $6.2 billion bid for Affiliated Computer Services Inc., the biggest processor of U.S. student-loan payments.

Cerberus this month offered to pay ¥43 billion to increase its stake in Japan’s Aozora Bank Ltd.

The Japanese buyout market is less vulnerable to rising funding costs because deals tend to be smaller than those in the U.S. and Europe, Folsom said.

Private equity and buyout funds are also attracted to Japanese firms because they tend to hold more cash and less debt. As of March 11, 292 publicly traded Japanese companies had net cash exceeding their market value, according to a study by Nikko Asset Management Co. in Tokyo.

Advantage Partners was founded in Tokyo in 1992 by former Bain & Co. executives Folsom, 47, and Taisuke Sasanuma. The company raised ¥2.95 billion in 1997 for a Japan buyout fund and has since started three more.

It has invested in more than 20 Japanese companies, including retailer Daiei Inc. and restaurant chain operator Rex Holdings Co., according to its Web site.

Blackstone Group LP, manager of the world’s biggest buyout fund, set up an office in Tokyo last year and plans to invest in Japanese real estate. Other buyout firms in the Japanese market include Carlyle Group, which raised ¥215.6 billion for local buyouts in 2006, and Kohlberg Kravis Roberts & Co., which has conducted three of the world’s four biggest leveraged buyouts.

Advantage Partners completed the takeover of Tokyo Star for as much as ¥252 billion on March 6, gaining 35 branches and ¥1.5 trillion in deposits.