Tokyo – May 27^th, 2022 – The Japan private equity market had a landmark year in 2021 with number of transactions and deal value hitting their highest levels ever. Deal value came in at a total of ~¥2.7T, a 160% increase over 2020. The total number of transactions was also up 45% reaching 134 transactions for the year driven by activity increasing substantially across all deal sizes. Investors also took advantage of improved market conditions to ramp up exits to six times the amount in 2020, totaling ¥1.8T. These are among the findings from Bain & Company’s 2022 annual Japan Private Equity Report, released today.

“The Private Equity market in Japan has been phenomenal despite the impact of macroeconomic headwinds, highlighting the massive demand and interest we have been seeing in the market for some time.” said Jim Verbeeten, Bain & Company partner and head of Japan Private Equity. “We expect that this growth will continue as more funds are setting up in Japan, which highlights both their commitment to the market and also the opportunities being seen here.”

The research found that while there was a rapid increase in growth equity deals that now account for approximately 40% of the equity committed, growth equity investments are still comparatively lower in value than those in other markets. As PE investors pursued a broader range of strategies, including growth equity and infrastructure, deal sourcing also became more diverse with substantial contributions coming from all types of deals, including public-to-private deals, corporate carve-outs, and sponsor-to-sponsor transactions. Bain notes the opportunity for traditional buyout PE firms to create value by grooming assets for sale to owners that finance from funds with a lower cost of capital, such as infrastructure, real estate, or long-hold funds.

Another key focus has been Environmental, Social, and Corporate Governance (ESG), which has become a major focus for PE globally. With most GPs making quantifiable commitments, including reduction of greenhouse gas emissions within their portfolios, PE funds in Japan still have work to do. In fact, Japanese PE portfolio companies emit more than the average Japanese company, and total emissions of PE’s portfolio in Japan exceed the emissions of a country like Sweden. Carbon intensity in Japanese PE portfolio companies also varies widely, with particularly high intensity in manufacturing.

“The PE sector in Japan is planning a massive shift in its commitment to ESG which is extremely positive, as almost 90% of GP investors in Japan now plan to increase their focus on ESG issues going forward, particularly around clean energy and clean manufacturing processes.” said Sebastien Lamy, Bain & Company partner and co-author of the report. “Japan has the potential to be a leader in this space, so it’s encouraging to see such a large commitment from the industry.”

“It’s clear that the Japan Private Equity market is on an upward trajectory after the uncertainty of the pandemic, so it’s extremely encouraging to see both the increase in deal activity and sourcing, but also the underlying sentiment being so positive from speaking with industry leaders”, said Azusa Owa, Bain & Company partner and co-author of the report. “As we move forward into 2022 and beyond, there are more opportunities, but we recommend that firms focus on their core investment themes and diligence, particularly in ESG to keep ahead of the curve.”