Foreign investment funds once feared as "vultures" have in recent years made their presence felt in revitalizing Japanese firms. For this installment of Leaders, a column featuring corporate management and senior executives, The Yomiuri Shimbun spoke to Yuji Sugimoto, representative of U.S. investment firm Bain Capital Private Equity (Japan) LLC, Bain Capital Japan, about business innovation and key principles for investment.
In Japan, there was a deep-rooted sense of caution toward investment funds, particularly the foreign kind. They were judged as so-called vultures for snapping up companies, ripping them apart and in the end selling them off at a high price. Such stories have been made into movies and TV dramas.
Up to the 2000s, the activist shareholders who bought up stocks and forced companies to increase dividends and sell off assets were drawing criticism. With the Murakami Fund insider trading case and others like it, there was not a good impression of these funds in general.
Recently, however, foreign funds have come to be accepted. Many of the funds that antagonized management, cowing them by brandishing the "logic of capital," have already left Japan. I think funds like Bain Capital that do just the opposite -- cooperating with management and aiming to revive companies -- have boosted their credibility.
The turning point came when Bain Capital successfully reorganized the management of food service giant Skylark. We bought it in 2011 and got it relisted three years later. Having opened too many restaurants, Skylark's profits were squeezed and it had collapsed into a diminishing equilibrium. But Skylark was an established pioneer and its brand was strong. Hearing about it from a securities-based fund, I quickly determined, "It'll be fine, we can definitely reorganize it."
That being said, we did not do anything particularly special. With Skylark, we improved the cooking and serving system to make operations more efficient and ensure that customers would not have to be kept waiting. Seating arranged for families of four meant that space was wasted, as more people nowadays are dining in pairs or alone. That is why we added more seating for small groups and reconfigured the layout. That is about the extent of what we did.
Japanese companies that are struggling to manage are often bound to past successes and obligations. If you try to take an authoritative line with them to change, it will not work. It is about accumulating data that supports improvements and results, and convincing the management. We do this again and again.
[In 2015, Bain Capital bought Ooedo-Onsen Holdings, which operates hot spring facilities, and took Yukiguni Maitake, which was in the second section of the Tokyo Stock Exchange, under its control with a takeover bid.]
What recently grabbed headlines was Bain Capital acquiring stock in Toshiba Memory, Toshiba's semiconductor arm. Bain Capital has lots of experience with dining establishments and services, but this was actually our first time in the manufacturing industry. There was added value in fixing "venerable Toshiba's management crisis" and gleaning "priceless high-tech skills," so all eyes were on us.
Toshiba's brand is strong. It is on the same level as its rival and the industry leader, Samsung Electronics. It is a Japanese treasure. But its weak spot was decision-making.
[The semiconductor business has a lot of investments over 100 billion yen. Ongoing, timely investment in research and development is a must, so quick decision-making is highly desired. It is said that even when Toshiba had about 10 billion yen in investment at a certain point, it needed a month or more of time to make a decision.]
More than anything, investment depends on quick and timely decision-making. This requires not consensus, but "single-player leadership." A leader who takes the initiative is necessary.
My blood ran cold when, at one point, it looked like Toshiba Memory was going to be sold to Western Digital in the United States. Luckily, however, Toshiba has already started construction on a new factory in Iwate Prefecture. I am confident that its stock will be relisted within three years.
Looking at investments from here on out, those that have to do with health care, such as social services, look appealing.
"You gave it your best shot"
[At Mitsubishi Corp., Sugimoto felt like he had hit a dead end in his work. In his fourth year after entering the company, he studied abroad at Harvard Business School (HBS).]
That was a turning point. There was one instance I can still vividly recall. In a class on marketing, which is not my forte, we were talking about British car Land Rover. At HBS, you fail if you do not speak up in class. I did lots of preparation and aimed to plunge ahead by just saying whatever I could.
The professor, who was from South Africa, started by making a request of the class. "Land Rover is as British as they come. So first, I'd like to hear from a resident of a former British colony. Somebody, raise your hand."
I put my hand straight up and prattled on and on with my thoughts. The only thing I had heard was, "Raise your hand." As the other students whispered, the professor continued:
"OK, Yuji. So, imagine yourself driving a Land Rover in Japan. What do you see outside the window?"
"Desert. The color of sand, as far as the horizon." This time, I had missed the words, "in Japan." The classroom was set even more abuzz, but I had no idea what everyone was clamoring about.
After class, a friend asked me, "Are you feeling alright?" and I realized what had happened. I hurried to the professor to apologize, and this is what he told me:
"Don't worry about it. You gave it your best shot, even though you can't speak English. Good job."
Many people have probably had such an experience. But this was my first time to come into direct contact with a culture where those who try are not ignored, and it left a deep impression. Challengers can also fix the environment of organization that tends to fall into a rut. This is an axis in my job and the driving force, I think, behind my leap into investment fund business.
Don't make excuses
Bain Capital aims to cooperate with management to revitalize and expand operations. This is not just saying good things. In Japan, it is better for business to provide attentive support than waving around a big sword, antagonizing everyone. Actually, 80 percent of Bain Capital's staff are from business backgrounds and 20 percent from finance backgrounds. For other investment funds, the ratios are flipped. That is because we stress business reform without prioritizing financial logic.
For the 10 years after I returned to Japan in 2002, however, things did not go well. I was given the cold shoulder, even when I made appointments. There was even one company where I was met by the general affairs department chief [who handles corporate racketeers trying to disrupt shareholders meetings.]
Investment is a world of "Sen-Mitsu" [meaning that only about three deals are successful among a thousand cases]. There are many cases in which the other party doesn't bite, even if you see the attractiveness in it, or you don't on the contrary. Negotiations take years. How can just a few encounters lead to success? There is probably a simple answer.
It is essential to take a strong position like: "Leave it to me. I'll make it work." If people do not do that, they will not gain anyone's trust. The same applies to those at the top of management as well as new hires. Also, you should not blame others when they fail or make excuses like chalking it up to bad luck. For these people, chances will definitely come back around.
At first glance, there does not seem to be anything exceptional to the investment world, which looks plain, yet flashy. More so than knowledge and experience, lovely though they are, humanity is most important in the investment business, too. That is something I want young people who are aiming to join this world to know.
-- Yuji Sugimoto / Representative of Bain Capital Japan
Born in 1969, from Kanagawa Prefecture. Graduated from Keio University's Faculty of Economics in 1992 and joined Mitsubishi Corp. After studying abroad at Harvard Business School, he was transferred to U.S. investment fund Ripplewood Holdings, which Mitsubishi Corp. had invested in, and became involved in the investment business. Established the Japanese arm of U.S. investment fund Bain Capital, LP in 2006 and became its representative.
-- BAIN CAPITAL, LP
Founded in 1984 from Bain & Company, a consulting firm. It is now one of the world's largest investment firms. The total amount invested has topped 90 billion dollars (10 trillion yen). Bain Capital is primarily engaged in private equity (investing capital gathered from investors in a company's unlisted stock, then selling it after raising company's value), venture capital (investing in start-up companies), and leveraged loans (financing for companies that are high-risk but offer high interest rates).
Headquartered in Boston, Bain Capital has offices in 14 locations including Shanghai, Hong Kong, New York and London, with operations involving about 1,000 specialists. Its Japan arm has about 40 professionals, with investments of over 1 trillion yen.
Read more from The Japan News at https://japannews.yomiuri.co.jp/
