Henry Kravis, KKR’s co-founder, said on Monday that he believes competition from South Korean and Chinese competitors is galvanizing Japanese companies into action – and that means potentially more deals for private equity in the world’s third-biggest economy.
The US private equity group is trying to convince Japan’s conglomerates to sell it their non-core businesses and to join forces on overseas acquisitions. KKR is in talks to buy Panasonic's healthcare business, although a KKR spokesman declined to comment.
“We’re seeing more signs that companies do want to do the things that are necessary to reposition themselves to be much more competitive,” said the 69-year-old pioneer of leveraged buyouts such as RJR Nabisco.
KKR, which had $83.5 billion in assets under management as of June 30, opened its office in Tokyo in 2006 and has been gradually building up its team in the country. In April, KKR hired Hirofumi Hirano as its chief executive in Japan. Hirano was most recently at turnround specialist AlixPartners and before that investment firm Nikko Principal Investments.
But deal-making in Japan has been slow work as Japanese managers have tended to view themselves more as caretakers of a company's assets for the next generation rather than risk takers. So foreign firms have found doing business in Japan particularly challenging. Last year, KKR attempted a $1.3 billion buyout of Renesas, a struggling Japanese chipmaker, but was pushed aside by state-backed fund Innovation Network Corporation of Japan.
That was before Prime Minister Shinzo Abe’s campaign to kick-start the country’s economy with a heady mix of fiscal and monetary stimulus combined with his mantra of social change.
Kravis said the change seen in Japanese business sentiment since Abe's landslide election victory in December has been startling: “I’ve been going to Japan at least once a year since 1978 and every year was the same. They are so fired up right now,” he said, speaking in Hong Kong to a small group of journalists.
He said that Japanese companies were finally grappling with issues that have curbed their profits and growth such as labour flexibility and an aging population.
“[Companies] are saying between Korea and China we’re losing our stature, we’re not important any more as a company, we have to change,” said Kravis, having just arrived from Japan where he attended the Asia Business Council in Kyoto.
Turning to his right-hand man in Asia, Joseph Bae, he said: “We’re seeing more potential activity today than we’ve seen ever right now.”
Bae nodded in agreement and added: “Japan could be a tremendously exciting opportunity for KKR if and when it opens up.”
