US private equity firm Bain Capital has offered to take Japanese medical services group Nichii Gakkan private in a $1.17 billion management buyout.
Bain Capital intends to make Nichii Gakkan an indirect wholly-owned subsidiary and delist the company’s shares from the Tokyo Stock Exchange upon completion of the deal. The private equity firm has already secured an agreement to acquire 44 per cent of Nichii Gakkan’s shares from its late founder’s relatives and the family’s asset management group.
It has offered to buy the remaining shares at 1,500 yen apiece, representing a 37 per cent premium to Nichii’s closing share price on 7 May 2020, a day before the company’s announcement of the tender offer.
Bain Capital will finance the transaction with 27 billion yen ($251 million) from its own funds, and obtain loans of up to 98.6 billion yen ($919 million) from MUFG Bank, Mizuho Bank, Sumitomo Mitsui Banking Corporation and Nomura Capital Investment, according to a stock exchange disclosure by Nichii Gakkan.
Nichii Gakkan’s representative director and president Nobusuke Mori, along with senior executives who are family members of the late founder and former chairman Akihiko Terada, are considering investing directly or indirectly in the tender offeror.
Nichii Gakkan had 37 subsidiaries and two affiliates by the end of March 2020. The group provides nursing and other healthcare services, as well as education, in Japan, Canada and several other Asia Pacific markets. It was listed on the Tokyo Stock Exchange in 1999.
The company’s original diversification plan to balance supply businesses (which include education, healthcare and therapy) and global business has not proven anticipated growth, it said.
In the education segment, it has withdrawn from the COCO language school business and closed unprofitable schools in China. Nichii Gakkan revealed it has implemented business structure reforms including liquidating a joint venture in China.
“Since January 2019, the company has striven to correct the trajectory of the medium- to long-term strategy due to failure in the structural reorganisation of the education business and global business and enhance growth potential and profitability on the basis of a strategy of “returning to the roots” focusing on the core businesses,” it said.
Over the short term, in the condition of uncertain business execution risks, Nichii Gakkan is cautious that profitability will deteriorate. If the restructuring measures “are implemented while maintaining the company’s listing, there is an undeniable possibility that the company shareholders will suffer detrimental effects in the form of a drop in the share market price over the short term,” it said.
“Making the tender offeror the company’s sole shareholders would be the best means for the company to swiftly address management issues and continuously raise corporate value from a long-term perspective.”
Bain Capital first entered Japan in 2006 with an office in Tokyo. Since then, the firm has invested in 17 local companies, including Showa Aircraft Industry, Cheetah Digital, Works Human Intelligence, Toshiba Memory Corporation and Japan Wind Development.
It was earlier said to be raising capital for its first Japan buyout fund that will focus on mid-sized companies in the country. If successful, Bain Capital will join global alternative investment firms Carlyle and KKR in raising dedicated vehicles for Japan.