Bain Capital has completed an $817m deal to acquire Showa Aircraft Industry that buys the Boston-based private equity group a specialised materials business, a Harley-Davidson motorcycle showroom and more than a million square metres of western Tokyo.
The purchase will offer Bain access to an immense 1.25m sq m bank of land in the suburb of Akishima, which was originally used as a factory and airfield for military planes during the second world war and now sits next to the US and Japanese air base at Yokota.
In addition to a hotel and tennis club, it is the home of one of the closest golf courses to central Tokyo — a proximity that used to endear the course to busy salarymen. However, Bain believes the land could be put to a more profitable use in distribution centres and warehouses. People briefed on the deal said “it makes no sense to be a golf course”.
With Bain as the full owner of Showa, the company will delist from the Tokyo Stock Exchange after almost 60 years as a publicly traded company. Mergers and acquisitions bankers and lawyers in Tokyo have said they know of “at least half a dozen” other listed companies where managements have recently opened discussions over take-private deals. Those talks have accelerated, said one banker at a US firm, since the March market turmoil hit valuations of companies across the market.
Japan’s market, where more than half of listed companies are trading below their book value, has long appeared to offer mouthwatering opportunities to private equity. But dealmakers have said it is only comparatively recently that significant numbers of Japanese companies have felt comfortable discussing take-private deals, leveraged buyouts and other options with private equity firms.
In the case of Showa, 63.6 per cent of the stock had been held since 2014 by the Japanese shipbuilder, Mitsui E&S. In common with other companies, Mitsui E&S has come under investor pressure to focus on its core businesses and divest assets. But its decision to sell the stake in Showa was sharply accelerated when the shipbuilder and engineering group booked a heavy net loss last year and began discussions towards a sale.
David Gross-Loh, the Bain executive behind a string of deals in Japan that include the $18bn acquisition of Toshiba Memory, said in a statement that the private equity group would engage in the “redevelopment” of Showa’s real estate, as well as continuing to run the core manufacturing business.
Bain’s acquisition of Showa completes a tender process that began earlier this year and that people involved said highlighted some of the extreme valuation distortions concealed within the depths of the vast Tokyo stock market.
As well as owning a profitable industrial business, Showa’s most recent financial report lists its land assets at a heavily depreciated ¥13.3bn ($122m): real estate analysts have suggested in the past that, given local prices in Akishima, the land could be worth more than $2bn.