The value of private equity and venture capital deals in Japan plunged 73% to $8.56 billion in 2023, hitting a four-year low, according to S&P Global Market Intelligence data.
The number of deals declined only slightly year on year to 84, suggesting a trend toward many small investment stakes.
In the fourth quarter of 2023, private equity-backed investments, including whole company and minority stake acquisitions and asset acquisitions, totaled $7.30 billion, down from $17.48 billion recorded in the year-ago period.
The number of announced deals decreased only slightly to 24 from 26 recorded in the fourth quarter of 2022.
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The industrials sector recorded the highest private equity and venture capital-backed deal value in Japan.
Topping the list of the largest transactions was Bain Capital Pvt. Equity LP's offer to acquire a 95% stake in Outsourcing Inc. for about $2.44 billion. Second in line was Blackstone Inc.'s agreement to acquire an 80% stake in Sony Payment Services Inc. for $1.97 billion.
Private equity deals poised for growth
Private equity-led mergers and acquisitions in Japan are expected to increase in 2024, driven by the Tokyo Stock Exchange's move to address the issue of undervalued stocks by releasing a list of companies that have disclosed plans to increase their capital efficiency.
"The move will accelerate now, giving private equity funds a chance to seek a buyout," said Daisuke Nishikawa, executive officer and director of growth strategy at Nihon M&A Center Inc.
Even though interest rates might go up due to the end of Japan's minus-interest rate policy in April, it may not have a significant impact on M&A deals. "Rising interest rates in Japan won’t be so steep like the US and a return that a PE fund seeks to earn is much higher," said Nishikawa.
Fundraising
There were 111 private equity and venture capital funds with a vintage year of 2023 that include Japan as their geographic focus, aiming for a combined maximum target fund size of $13.84 billion.
This marks an increase from 100 funds with a vintage year of 2022 with a combined target fund size of $8.4 billion.
The Carlyle Group Inc.'s Carlyle Japan Partners V LP was the largest vehicle with a 2023 vintage, according to data from Preqin. The buyout fund has a target size of about $2.77 billion.
Yuzo Yamaguchi contributed to this report.