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Private Equity Analyst Note: Opportunities in Japanese PE

3Q 2017

Private Equity Analyst Note: Opportunities in Japanese PE

August 29, 2017

Private Equity Analyst Note: Opportunities in Japanese PE
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The Japanese economy has been in a slow growth cycle since the 1990s and consequently continues to be a relatively undervalued market given its level of economic development and financial stability. After being trapped for decades in a deflationary spiral, the Japanese government in recent years has instituted numerous changes to the corporate governance code that make it appealing for PE activity. The focus on monetary easing, fiscal stimulus, and further structural reforms to spur economic development make the country’s private markets even more appealing.

Key takeaways & highlights: 

  • Despite record high corporate profits, EV/EBITDA multiples for publicly traded Japanese companies sit at 7.9x as opposed to 11.9x for US public companies. Given a historically less competitive M&A environment in Japan it is likely there is even greater variance between public and privately held companies relative to what you would find in the US or EU.
  • The Japanese corporate tax rate is roughly 24%, one of the lowest tax rates in the developed world. This combined with cheap debt could enhance potential PE returns.
  • 23.3% of company presidents were over the age of 70 in 2015 and this number is expected to climb. Business owners looking for succession plans can potentially provide the type of proprietary PE deal flow that is so difficult to find in other developed nations.