You’re reading Value Add’s weekly briefing, the leading newsletter for the operating side of private equity. Here’s what you need to know this week, from insights for PE-backed executives and portco news to recent buyouts and investment trends. 

Insights

Chart of the Week: When Catalent was acquired by Blackstone in a $3.3 billion carve-out deal, the company was underperforming other pharmaceutical manufacturers. By hiring a new management team and opening new production facilities to increase capacity, Blackstone helped Catalent increase its adjusted EBITDA by 24% during the holding period. Even more impressive, the operational improvements helped Catalent sustain long-term growth, culminating in the company being acquired by Novo Holdings for $16.5 billion in 2024. (Read More)

More Insights

• Private Equity Case Study: Catalent (Read)
• Operations Are at the Core of Edison Partners’ Energy AI Deal (Read)
• Europe Private Equity Report 2024 (Read)
• Consumer Sector Private Equity Report (Read)
• Private Equity Case Study: BJ’s Wholesale (Read)

Spotlight

What’s the deal? Private equity firm KKR is set to sell approximately half of its 43% stake in Kokusai Electric, a Japanese chip equipment manufacturer, in a follow-on public market offering. Based on recent market prices, the 21.5% stake is valued at about $1.6 billion. 

KKR acquired Kokusai in 2017, back when it was the semiconductor manufacturing arm of Hitachi, for $2.2 billion. It wasn’t always the PE firm’s plan to hold Kokusai for nearly seven years – although its patience turned out for the best. In 2019, KKR attempted to capitalize by selling Kokusai to a U.S. competitor, Applied Materials. However, the sale was ultimately blocked by regulatory challenges in China and fell through in 2021.

Following the failed sale, KKR led Kokusai to an IPO on the Tokyo Stock Exchange in October 2023. The IPO reduced KKR’s stake from 73.2% to 47.7%. The IPO was the largest Japan had seen in five years and raked in $724 million, valuing the company at $3.6 billion.

Kokusai’s shares experienced a slight decline since KKR announced the substantial sale of their stake, including the largest single-day drop (12%) in Kokusai's share price since its IPO. Despite this, KKR’s investment has appreciated substantially and tripled in value as compared to the IPO share price. Kokusai is set to buy back shares in the market after the sale is complete.

Why is KKR selling? KKR is selling half of its stake primarily to capitalize on Kokusai’s strong market performance. It’s not hard to be a well-performing semiconductor manufacturer nowadays, as the global demand for chips is projected to skyrocket as generative AI takes off, with Deloitte estimating that global sales will reach an all-time high of $588 billion in 2024. 

In addition, KKR is just one of many private equity companies looking to capitalize on investors’ interest in Japan. According to our March 2024 report, Japan makes up 12% of global PE buyouts and secondaries, second only to the US. It’s an all-time high for the country as investors seek to capitalize on its dynamic tech sector.

Let’s take a closer look at Japan’s current PE market trends and the potential opportunities for investment firms:

1. Exit backlog: According to McKinsey, Japan has seen nine PE exits with a valuation over $1 billion since 2010, compared with the US’s 464 during the same time period. No wonder KKR had to take Kokusai public…
2. Non-core asset carve outs: McKinsey also notes that over half of the largest PE deals in Japan since 2020 have been carve outs of non-core assets from larger parent companies. In fact, the two largest deals were for other Hitachi businesses: KKR’s 2022 acquisition of Hitachi’s Transport System, and Bain’s 2022 acquisition of Hitachi Metals. 
3. Tech sector buyouts: According to our March 2024 report, Japan’s technology sector is second only to the US. Of the 500 PE-led buyouts and secondary deals that occurred in the country in 2023, 389 were in the technology sector.

KKR did not give a timely response to request for comment.

Buyout News 

Platinum Equity Partners has agreed to acquire Héroux-Devtek, an aircraft landing gear maker based in Quebec, for C$1.35 billion ($980 million), or C$32.50 in cash per share. The firm is currently trading on the Toronto Stock Exchange, closing at C$31.12 on Monday. The deal is expected to close before March 31, 2025.

Madison Dearborn Partners has sold LinQuest, an engineering and data analytics company, to government contractor KBR for $737 million. One reason KBR bought the firm was the high portion – two-thirds – of LinQuest’s employees that hold government security clearances. The deal is expected to close by the end of the year.

Qatalyst Partners is scoping out PE interest for Smartsheet, a collaboration software platform used by 85% of Fortune 500 companies. The firm has a reported market value of $6.6 billion and is currently traded on the New York Stock Exchange. Its stock closed at $48.55 on Monday.

Online ticket platform Dice is also courting a PE buyer. According to Bloomberg, the buyer will take a significant stake worth “hundreds of millions of dollars.” Current investor Softbank will be selling its stake in the transaction, which it bought in 2021 during a $122 million series C fundraise alongside coinvestors.