Japan in ‘early innings’ of more corporate buyout activity, says Goldman Sachs

SINGAPORE: Corporate buyout and private equity activity in Japan is in the “early innings” and the country’s stock market is well placed for consolidation, Goldman Sachs Asset Management’s Stephanie Hui told the Reuters NEXT Asia event in Singapore on Thursday.

Hui said Japan, alongside South Korea and Australia, were the most lucrative regions in Asia for mergers and acquisitions or take-private deals given their stable economies and larger-sized companies.

Foreign private equity firms have become increasingly active in Japan in the past three years, especially as changes in corporate governance rules put pressure on companies and boards to improve returns for investors.

Deals in Japan this year include KKR moving to take chemicals company Taiyo Holdings private and Bain Capital and SoftBank’s LY Corp competing with EQT to buy internet firm Kakaku.com.

“The number of listed companies in Japan is 4,000, the number of listed companies in the U.S. is about 5,000,” Hui said.

“The size of the US economy is six times the size of Japan. If you look at Germany, which is a similar size to Japan, (there is) 400 listed companies, so Japan you could argue has too many.”

Hui said there were more than 1,000 companies in Japan with revenue above US$1 billion a year, which made them attractive to foreign private equity buyers.

“You could argue how many listed companies there should be in Japan at the end of the day, but we’re just in the early innings of this process.”

Hui said Japan’s private equity activity increase had led to a greater focus on companies being more efficient, shareholder value and digitalisation across the economy.

Speaking about AI at the conference, Bain Capital Japan chief strategist Satoshi Ueyama said: “Our focus is to identify which are the businesses that are the AI-enabled winners in the kind of service segment and maybe consumer applications.”

“There’s no denying that some part of the market is overexcited (about AI) … not all the AI investment is going to be successful,” he added.

View the live broadcast of the World Stage and read full coverage of the summit here.