Japanese firms' succession problem is a boon for private equity dealmakers

Sun Jul 17, 2016 11:17pm EDT
 
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By Junko Fujita

TOKYO (Reuters) - Japan's aging population may be bad for the economy but it is giving dealmakers a break. As more owners of small and medium-sized businesses reach their golden years without grooming a successor, some are turning to private equity firms for capital and management expertise.

The number of older owners has been rising, and a low birth rate means that there are often precious few heirs to take over from them. Even when the owners have children, they often reject the idea of taking over from their parents, while some just don't have the mojo for business, according to private equity investors and a government official who have studied the question.

And with private equity firms increasingly scouring for value among small and medium-sized companies that may have great products but haven't had access to the capital needed to fulfill their potential, there are an increasing number of matches being made. Sometimes the firms are sold outright, on other occasions the private equity firm will initially take a partial stake with a view to controlling the entire company at a later date.

Katsukiyo Mizumoto, the president of bean sprouts producer GGC Group, is an example of an owner who responded positively when a major private equity firm – in this case the Washington, D.C.-based Carlyle Group (CG.O: Quote) - came knocking on his door.

The 65-year-old said he had been unable to groom a successor from within his family or from inside the company, which has annual sales of about 8 billion yen ($79.3 million). He says he had become such a dominant figure that his managers had not risen to prominence.

"I am losing my strength each year. But because I had adopted a top down management style, my staff only wait for my decisions," said Mizumoto, who took over the company from a long-term business acquaintance more than a decade ago.

Carlyle said it invested an undisclosed sum in GGC in March. And, according to Mizumoto, it is now helping him to find new executives and to expand the company’s sales area from western Japan to Southeast Asia and other parts of the region.

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Passersby walk in front of video monitors announcing the Carlyle Group's listing on the NASDAQ market site in New York's Times Square after the opening bell for trading, U.S. May 3, 2012. REUTERS/Keith Bedford/File Photo