Goldman Sachs Mines the Japanese Market "Alpha": Plans to Invest 800 Billion Yen in the Next Ten Years, Focusing on Mergers and Acquisitions of Medium-sized Enterprises

Goldman Sachs Group, Inc. (GS.US) plans to expand its acquisitions and investments in Japan's thriving corporate mergers and acquisitions market by about 800 billion yen (approximately $5.1 billion) over the next decade, with a focus on mid-sized enterprises. Yu Itoki, Managing Director of Growth Equity and Private Equity team at Goldman Sachs Group, Inc.'s Japan office, stated that the company is looking for business clients in areas such as management buyouts, subsidiary sales, and succession planning. He believes that there is strong demand from global institutional investors for the Japanese market, and more companies are showing interest in activities such as management buyouts and selling non-core assets. Itoki mentioned in an interview that their investment pace is now two to three times faster than before, as the balance between investors and companies seeking financing has become more aligned. With corporate governance reforms aiming to enhance shareholder returns driving more transactions, it is expected that by 2025, the value of transactions involving Japanese companies will skyrocket to approximately $350 billion, reaching a historical high. Itoki noted that while there are numerous multi-billion dollar deals happening, they are not the main focus of Goldman Sachs Group, Inc. as the competition is fierce and the attractiveness has decreased significantly. Goldman Sachs Group, Inc.'s target clients are medium-sized enterprises valued between 30 billion and 300 billion yen, which often lack the resources needed for international expansion or mergers and acquisitions. Itoki said, "In many cases, these companies have high business quality, significant market share in Japan, but lack the resources required for further growth." Goldman Sachs Group, Inc. has already started making such investments. In 2022, they collaborated with Eneos Holdings Inc. in the acquisition of construction company Nippo Corp. for around 200 billion yen. In 2024, the U.S. investment bank, in partnership with founding families and other investors, conducted a management buyout of Japan Housing Co., Ltd. for approximately 94 billion yen. The firm is focused on four sectors including technology companies they invest in, such as taxi dispatch application operator Go Inc. and smart lock company Bitkey Inc. Healthcare is another key sector, with Kakehashi Inc. operating in the intersection of healthcare and technology, providing software data to pharmacies through cloud services. Earlier this year, the company raised around 14 billion yen from Goldman Sachs Group, Inc. and existing shareholders. According to Itoki, the third key sector is industrial, covering a wide range of industries such as Nippo and Nihon Housing. Network service provider Raksul Inc. recently announced a management buyout at a price of 120 billion yen. Itoki stated that industrial companies "may not necessarily be experiencing rapid growth," but they possess "high-quality technology and services, and have significant value enhancement potential through operational efficiency improvements and streamlining of balance sheets." Goldman Sachs Group, Inc. had not previously ventured into the fourth major sector consumer goods until they announced the acquisition of Japan's Burger King last November for approximately 70 billion yen, through the purchase from Hong Kong investment firm Affinity Equity Partners. Itoki mentioned that fast-food chains like Burger King have seen rapid growth since the outbreak of the COVID-19 pandemic, especially with Burger King's strong performance. Due to language barriers, differences in business practices, and regulatory environments, overseas private equity funds need to allocate time and resources to establish teams in Japan and invest directly. Itoki said, "Many investors believe that entrusting funds as limited partners to companies with teams and a track record in Japan is reasonable." He added that for funds entrusted to Goldman Sachs Group, Inc., "I hope to invest responsibly and help Japanese companies grow and prosper."