Japan Special: Ant Capital Partners

Amid the subdued economic backdrop shadowing much of Japanese corporate activity, Ant Capital Partners is shining the light on an investment bright spot.

Sluggish earnings, capped profits and a GDP growth rate of just 1.3 percent forecast by the World Bank for 2016, would sound loud alarm bells for most investors looking at Japan. Abenomics, the programme of aggressive monetary policy, fiscal stimulus and a regulatory reform introduced by Prime Minister Shinzo Abe has yet to fire up the economy. A volatile stock market, currency lows and headwinds from slowing Chinese growth just darken the picture.

But for private equity managers there is shining opportunity. Local firms such as Tokyo-based Ant Capital Partners are no strangers to economic peaks and troughs. The operational buyout firm, which also has a strong secondaries business, has ploughed a rich furrow investing in Japanese small and medium-sized enterprises (SMEs), which account for over 80 percent of the domestic corporate universe.

Ant Capital has operated in the local market since 2000, successfully selecting buyout opportunities in the small to mid-cap space. Its assets under management now stand at $1.2 billion. The firm is currently investing from the fourth flagship fund in its “Catalyzer” series, a ¥13.15 billion ($119 million; €106 million) vehicle that closed in 2010.

Among Fund IV’s investments are 140-year-old shoe manufacturer MoonStar Company and health snack company Sokan, as well as Shizuoka-based building material retailer Maruhon, B2B hotel reservation website Appleworld and Tokyo-based rental guarantor company Casa.

Its buyout investment mandate is clear and tested. It targets undermanaged, overlooked and underinvested SMEs with an enterprise value of $20 million-$250 million with stable cashflows in sectors including consumer retail, light manufacturing and business services.

While economists worry about an aging Japanese population, Ant Capital says it can help steer generational transition at investee companies. Where other investors express concern about conservative consumption habits, the firm sees huge opportunity to boost well-loved brands and proven business models through operational improvements.


There are only a handful of active managers in the same space in Japan, says Ryosuke Iinuma, Ant Capital Partners president and head of its private equity team. The firm’s response is to differentiate itself by not simply investing, forecasting and monitoring its portfolio companies, but by rolling up its sleeves and instigating operational transformation.

“Most Japanese SMEs have a business owner at the top,” notes Iinuma. “They are super salesmen and draw in customers, but these companies are undermanaged. They don’t have KPI [key performance indicator] based management and they don’t know how or have any experience of expanding their business in new and creative ways, either domestically or overseas.”

Ant Capital’s credits its success to the operational strength of its team of 16 investment professionals, backed up by veteran private equity experience. Four of its existing partnership team have worked together since the firm launched its first vehicle in 2001.

“Most of our team have an operational background – have run their own businesses, divisions in a corporation or have provided management consulting services. Only a few have a financial engineering or investment banking background,” says Hong Kong-based Ant Global Partners managing partner John Cheuck. “We only invest in what we know and have industry experience in.”

The firm deploys at least one executive fulltime into a portfolio company, with additional support from others on a flexible basis. The team focuses on creating efficiencies to boost EBITDA, rather than slashing costs and employees, and is moderate with leverage. As a local player, it is also culturally sensitive to issues triggered by change at management level.

“Cutting costs and firing people is easy,” Iinuma says, “but you have to get into the business to see the inefficiencies, such as inadequate use of IT, procurement, accounting systems, decentralised sales or purchasing, top down management not bottom up, lack of brand focus, or more brands and products than a company needs.”

Its active management approach takes time and caps the number of deals undertaken, but it yields results. One of the firm’s more recent exits was of its stake in Muginoho Holdings, a food manufacturer and retailer with franchises such as Beard Papa’s cream puff kiosks.

The company’s EBITDA stood at ¥401 million in 2006 prior to Ant Capital’s investment. Following the firm’s restructuring of its business model, the development of new businesses lines and products, as well as investment in quality management, including hygiene control, and the construction of new factories, the EBITDA figure more than doubled to ¥945 million in 2013, the year the firm exited the business to Tokyo-listed food manufacturer Nagatanien Holdings Company.

Ant Capital maintains the pursuit of alpha has been robust across its four buyout funds to date. Fully realised buyout transactions from the firm’s Catalyzer series of funds have generated total EBITDA growth of ¥32.6 Billion with an average enterprise value/EBITDA multiple of 7.9x on exit, up from 5.6x on entry.


Ant Capital was also able to bring strategic value to Muginoho by supporting its overseas expansion. Identifying companies with the potential to enter faster growing international markets is a key plank of the firm’s strategy. It marks it out from its peers. Its cross border realisations to Chinese buyers were eye-catching and a rarity in the Japanese market.

In 2010, the firm sold a 75 percent stake in Honma Golf, a manufacturer and retailer of golf equipment, to a Shanghai-based conglomerate Marlion Holdings. In the same year, the firm sold packaging company Tri-Wall Japan to China’s CITIC Capital as part of its strategy to accelerate its Asian expansion.

Honma Golf, which the firm acquired in 2006 and Tri-Wall, bought in 2005, were selected on the basis they occupied interesting niches, offered strong brands and technology, but crucially, displayed significant scope to grow outside Japan, Cheuck says.

It is not easy. Japanese business owners can also be hesitant to sell their company to overseas buyers, particularly in China. “There is an emotional component,” Cheuck says, as well as fear the transaction will fail.

Iinuma adds: “We understand that employees have such a feeling. With Honma, in order to integrate the business and culture, we installed our team member as its Japanese CEO and that offered them some comfort.”

Typically, the companies are exited to strategic partners, which have included Japanese blue-chips Toyota Motor, watchmaker Citizen Holdings, and the trading arm of All Nippon Airways.

“Employees are happy to be owned by a big name and this reputation brings new deals [to us] in the same segment,” Iinuma says. Honma followed its investment in second-hand retailer GOLF Partners, while the firm’s investment in baked goods company Aunt Stella heralded its investment in Muginoho.

With an immediate improvement in Japan’s economic environment unlikely, the stage appears set for Ant Capital to continue its value creation strategy of identifying and transforming companies in need of an operational upgrade and a guide to international markets. ?

Ant Capital Partner’s investment in Tochigi-based seaweed snackmaker Sokan in November 2014 was a classic transaction for the firm. The company’s owner and founder was a brilliant salesman who controlled the business, relying only on his wife and best friend. The company had accrued about 90 percent market share, but had hit a growth ceiling. It was ripe for reorganisation and the introduction of new processes to grow it to the next stage.

“They had never had a board meeting in its history, the owner decided everything,” says Ant Capital president and managing partner Ryosuke Iinuma.

The deal was sourced through Nomura Securities, which Iinuma notes, recognised that Ant Capital was strong in investing in businesses on the brink of leadership succession and in need of hands on post-investment attention.

“The owner wanted someone he could work with to help the company grow and keep a 30 percent shareholding,” says Ant Global Partners managing partner John Cheuck.

The firm installed three of its own executives. It has introduced new processes and policies, including board and management meetings and key performance indicators, and supported hiring new staff.

The company had not analysed its local market or its product position prior to Ant Capital’s investment, and over the past year the team has reviewed its approach to sales and procurement. The existing management “were very good at development but not at research”, notes Cheuck of the company’s ability to make a new product on time and on cost but with no supporting data.

Crucially, Ant Capital’s involvement has helped the company secure financing for a new factory that is scheduled to open this year. And it is helping it expand overseas for the first time by establishing a partnership with a Thai seaweed snack maker that has a similar story.

Sokan has already begun promotional distribution of its partner’s Thai flavours into the Japanese market and is working on Thai flavours of its own for expansion into Asian markets.

Ant Capital Partners president and managing partner, Ryosuke Iinuma, who heads its private equity investment team, knew MoonStar well. The 140-year-old shoe manufacturer based in his home town of Fukuoka in Kyushu was once run by his best friend’s father.

“There’s a family connection,” Iinuma says, highlighting the reach of the firm’s business network.

However, the path to investment was not without obstacles. When the firm approached the company 12 years ago, the board was resistant to its proposed changes. “Management needs to support a change in culture,” Iinuma notes, adding that when resistant members left, the firm was able to acquire a significant stake in MoonStar.

The company manufactures popular branded footwear for children and adults with a traditional focus on comfort and quality. They also provide OEM and contract manufacturing services for several well-known global brands. Since the management buyout in October 2013, the “transformation” team, led fulltime by Ant Capital managing partner Naoki Ito, has focused on improving its marketing strategy, boosting its distribution channels, developing new business lines and devising a global business development plan.

For the first time, the shoemaker has analysed which of its products were profitable. The company, which has 900 employees, has 18 factories outside Japan, and two inside. It discovered that its domestic production lines were more profitable with the consequence that it is now seeking to increase its local manufacturing base.

With Ant Capital’s help and guidance, MoonStar has also addressed conflict between its stable of brands, for which it recruited an Italian brand strategist from the footwear industry, its first non-Japanese executive, to support their overseas branding efforts.

“He took three months for [Ant Capital] to recruit and six months for the company to accept,” says Ant Global Partners managing partner John Cheuck.

It has also refreshed its brand message, moving away from its outdated association with comfort shoes.

As a result, over the past two years, revenues have grown from $350 million to $400 million and EBITDA from $8 million to an estimated $12 million. “We are not experts in shoes but we have a lot of experience running businesses and simplifying their processes,” says Cheuck.

This article is sponsored by Ant Capital Partners. It first appeared in PEI’s Japan Special supplement, published in April 2016.