Blackstone Enters Growing Japanese Private Equity Market with Agreement to Purchase AYUMI Pharmaceutical
The Blackstone Group (“Blackstone”), a New York-based financial services firm, announced on March 15, 2019, that it had signed a definitive agreement to purchase Japanese drug maker AYUMI Pharmaceutical Corporation (“AYUMI”). (Lisa Du, Bloomberg Law). This deal marks Blackstone’s first investment in a growing Japanese private equity market. (Matt Anderson et al., Blackstone). AYUMI produces drugs for rheumatic and orthopedic disorders and is valued at around $1 billion. The company is currently owned by Japanese private equity firms Unison Capital Inc. (“Unison”) and M3 Inc. (“M3”). (Lisa Du, Bloomberg Law).
Established in 2015 through the integration of Santen Pharmaceutical, a Japanese anti-rheumatic drug business, and Showa Yakuhin Kako, another Japanese pharmaceutical company, AYUMI has become a leading drug maker in the Japanese market. The company’s flagship product, Calonal, is the market-leading prescription acetaminophen[1]drug with strong brand awareness amongst the Japanese medical field. (Matt Anderson et al., Blackstone). AYUMI is also the market leader in the rheumatoid arthritis and biosimilar[2]fields, the latter is expected to be an important and growing treatment that is both highly effective and economical for the country’s national health insurance system. Id.
The United States Securities and Exchange Commission and its Japanese counterpart, the Securities and Exchange Surveillance Commission, each have yet to release a statement on Blackstone’s pending acquisition of AYUMI. This acquisition will be governed by the Financial Instruments and Exchange Act (“FIEA”), meaning that for “foreign private equity funds, even if the general partner is located and the limited partnership is established outside of Japan, a general partner of a limited partnership may be required to register with a Japanese regulator.” (Hajime Tanahashi et al., Practical Law Reuters). As part of establishing the required general partnership under FIEA, Blackstone hired Katsuyuki Kuki, a former chairman of banking at the Japanese branch of J.P. Morgan in August of 2017, to act as its chairman and representative director for the Japanese and Asian regions. (Dion Rabouin, Reuters).
The only concrete detail of the deal currently known is that Blackstone will take a controlling interest in AYUMI from Unison and M3, but no information has yet been disclosed regarding the cost of that interest. (Matt Anderson et al., Blackstone). In December of last year, it was reported that Unison had begun working with J.P. Morgan Chase & Co. to sell AYUMI. (Manuel Baigorri et al., Bloomberg). The significance of Blackstone’s investment is based on the face that Japan only saw $8.1 billion worth of private equity deals in 2018, and the cost of acquiring AYUMI will be approximately $1.0 billion. (Dion Rabouin, Reuters).
The effects of Abenomics, which are a philosophical approach to monetary policy created by Japanese Prime Minister Shinzo Abe, are a likely reason why Blackstone has recently decided to enter the Japanese private equity market. Prime Minister Abe's efforts to improve corporate governance and institute negative interest rates have spurred private equity investment, both from foreign and domestic investors. (Lisa Du, Bloomberg Law). The low and negative interest rates allow private equity firms to realize greater returns during leveraged buyouts by reducing the interest being paid on the loans. (Kushal Agarwal, Investopedia).
This merger is also an indicator of American investment firms attempting to find buyout opportunities abroad due to higher levels of risk in US and European markets. Jun Tsusaka, a managing partner at Nippon Sangyo Suishin Kiko (“NSSK”), a Tokyo-based private equity firm, noted that US institutional investors “appear to be wary of overexposure to the US market and deploying capital there because of entry multiples anywhere between 10-14x and in Europe they are 10-12x.” (Private Equity International) In contrast, Japan’s entry multiples for the private equity market range from 7-10x[3].Id.
Based on the success of Abenomics in attracting foreign direct investment, it will be interesting to see if a global “race to the bottom” emerges in regard to central bank monetary policy, as countries attempt to attract institutional investors with promises of greater returns and less risk on their investments.
[1]An analgesic drug used to treat headaches, arthritis, etc., and also to reduce fever, often as an alternative to aspirin. Proprietary names include Tylenol.
[2]Biosimilars are medicines made from living organisms through highly complex manufacturing processes. For more information see Popular Science.
[3]Entry multiples refer the price being paid for the company relative to their revenue or EBITA (Earnings Before Interest Taxes and Amortization). A higher entry multiple is associated with higher risk because greater levels of revenue and efficiency are required for the acquiring firm to recuperate their initial investment.