Private equity bid for Nichii Gakkan could set a template for future management buyouts

US private equity firm Bain Capital is placing a $1bn bet on the future of Japan’s nursing homes and dog-grooming salons, through a management buyout that dealmakers say could begin a boom in asset sales by founding families.
The Boston-based investment firm’s bid to acquire Nichii Gakkan would see the group’s shares delisted from the Tokyo Stock Exchange, with an agreement already in place to buy a 44 per cent stake held by the surviving relatives of the group’s late founder and the family’s asset management group.
The US private equity firm is then offering the remaining shareholders — which includes the secretive fund Effissimo — ¥1,500 ($14) per share, a price that puts a 39 per cent premium over their average price for the past month.
Bain’s ability to raise financing for the acquisition of the 51-year-old company, which also specialises in dementia facilities and housekeeping services, is a sign that Japanese banks are still ready to finance sizeable buyout deals at a time where their counterparts elsewhere in the world have sharply pulled back.
To finance the deal, Nichii Gakkan said that Bain was investing ¥27bn ($253m) of its own funds alongside ¥98.6bn in loans from Japan’s three megabanks — MUFG, Mizuho Financial Group and Sumitomo Mitsui Financial Group — and Nomura Capital Investment. 
“Around the world at the moment, Japan, Korea and — maybe — China are the markets where you can get the financing for this type of deal now,” said one person familiar with the deal.
Bain, along with other large private equity groups, has long seen Japan’s market as rich with potential for deals. Half of Japanese listed companies are trading below book value and many retain large numbers of valuable non-core assets.
And private equity executives believe that Japan’s traditionally conservative management teams now seem more willing than in the past to discuss buyout offers, despite the continuing prestige of being a listed company in Japan.
Some overseas investment firms have targeted asset sales from large conglomerates such as Hitachi and Panasonic, while others have focused on snapping up smaller companies. Bain’s previous deals in Japan include buying a chain of family restaurants, the country’s third-largest advertising company and the $18bn acquisition of Toshiba Memory in 2018.
People close to the private equity firm said the buyout of Nichii Gakkan pointed to a new potential seam of deals that centred on recent tightening of Japan’s inheritance tax rules.
They added that there was a growing recognition that a buyout could be the best way for company founders and their families to raise money from their often large equity stakes, while avoiding hefty tax bills.
Nichii Gakkan said on Friday that becoming a privately held company would give it the flexibility to further streamline its struggling operations, under a management team that took over after its founder and longtime chairman passed away last year.
The company faced trouble in 2017 when a former staff member murdered an 83-year-old resident at its elderly care facility in Tokyo. While its operating profit has tripled since then, as it dramatically scaled back its lossmaking education business, the company expects labour costs to rise for its nursing care homes.