Bain Capital’s $20bn Bid for Toshiba
Deal Overview
- Announcement date: N/A
- Industry: Alternative Investment/Conglomerate
- Deal value: Approximately $20bn
Company Details: Bain Capital
- Type: Private, Limited Partnership
- Industry: Alternative investment; Venture Capital, Investment Management, Public Equity, Private Equity, Real Estate and Credit Products
- Founded: 1984
- HQ:Massachusetts, U.S.
- AUM: US$120 billion (2020)
- Number of employees: 1,000+ (2018)
Bain Capital is an American private investment firm based in Boston, Massachusetts. It specializes in private equity, venture capital, credit, public equity, impact investing, life sciences, and real estate. Bain Capital invests across a range of industry sectors and geographic regions
Company Details: Toshiba Corporation
- Type: Public Traded as TYO: 6502, NAG: 6502, LSE: TOS
- Products: Electrical equipment, Software, Smartphones, Infrastructure
- Revenue: ¥3.693 trillion (2019)
- Net income: ¥1.01 trillion (2019)
- Number of employees: 141,256 (2019)
Toshiba Corporation is a Japanese multinational conglomerate headquartered in Minato, Tokyo. Its diversified products and services include power, industrial and social infrastructure systems, elevators and escalators, electronic components, semiconductors, hard disk drives, printers, batteries, lighting, as well as IT solutions such as quantum cryptography. It was one of the biggest manufacturers of personal computers, consumer electronics, home appliances, and medical equipment.
Strategic Rationale
The Japanese group on Tuesday(20/04/2021) turned down a $20 billion takeover bid from CVC Capital Partners, but said it would strongly consider a future credible bid from another company. Prior to this announcement, CVC had approached Bain Capital to form a joint bid for Toshiba, however Bain Capital, were reportedly cold to the idea. However since then, Reuters are reporting, that Bain have launched their own independent bid, entering into discussions with various Japanese banks (the core units of Mizuho Financial Group Inc and Sumitomo Mitsui Financial Group Inc) to gain access to capital funding. It is yet to be seen whether Bain’s current bid will involve other firms or not.
Broader Strategic Goal
Whilst it may appear as though Bain Capital’s approach for Toshiba is a bold strategic move, for a somewhat outdated technology manufacturing firm seriously lagging behind fellow global competitors, the strategic acquisition is in fact part of a broader attempt by Bain to diversify somewhat into the Asian Tech market. In 2017, Bain Capital led a consortium of firms, including South Korean chipmaker SK Hynix and Apple Inc for a management buyout of Toshiba’s chip unit, now called Kioxia Holdings. Whilst in 2018, they purchased a large majority stake in ChinData Group, a leading pan-Asian data center platform that delivers hyper-scale, wholesale and custom-build data center solutions to leading regional and global customers. In fact, Bain’s 2021 Asia-Pacific Private Equity report, noted that Asia-Pacific deal value rose to a record $185 billion in 2020, up 19% over 2019 and 23% over the previous five-year average, with successful General Partners weathering he storm of 2020 in part by focusing on digital business sectors. As such, given the favourable market conditions in the Asian economy over the past couple of quarters, in particular in the tech and digital businesses space, Bain’s proposed bid of Toshiba, may help them cushion losses they may be facing in other areas of their wider business.
However, whilst the aforementioned may be true, Bain’s broader plans for Toshiba, in terms of business strategy and structure are still to a large degree unknown, given that the deal is still in its early stages, and could in fact fall through all together. Furthermore, given that most sources commenting on the deal are doing so anonymously due to the confidential nature of the deal, ascertaining Bain’s current rationale is particularly difficult. Unsurprisingly, both Bain and CVC declined to comment on the deal.
Toshiba’s Rationale
Whilst Toshiba have noted in the past that they would not be opposed to an enticing offer from a private company, Toshiba’s current capital structure, as a publicly traded firm, provide them with “ capital structure suitable for enhancing long term value creation.’ As such, if Bain do in turn have serious ambitions to acquire Toshiba, they will likely have to put in a significantly higher bid than CVC could muster.
Risks
The risks for Bain are two-fold. First, independent of the value of Toshiba, the significant number of bidders who are proposing offers for the Japanese firm, may in fact erode the potential return on investment that Bain can create from the deal. KKR & Co Inc and Canada’s Brookfield Asset Management are looking at making bids, whilst The Japan Investment Corp (JIC) and The Norinchukin Bank are also considering a bid. In particular given the significantly erratic economic climate in the wake of the pandemic, the deal may be seen as increasingly risky by Bain P.E Stakeholders to the point possibly, where the deal may be called off. Secondly, Toshiba has also had its fair share of scandals over the past decade, including an accounting scandal and a managament crisis, which led to the bankruptcy of its U.S. nuclear power business and the sale of its prized memory chip division. Toshiba claim that they have ‘changed everything,’ and can ensure the issues do not resurface again, but in any event Bain certainly need to take into account the possibility of a challenging culture embedded within Toshiba
Market Reaction
Toshiba’s share price dramatically increased following the announcement of Bain’s proposed acquisition, with shareholders optimistic of Bain’s capital injection into the firm. However, a subsequent tumble of the share price, may be indicative of shareholder uncertainty of the completion of the deal.
What to expect next
It is highly likely that we will see other offers for the acquisition brought to the negotiating table, which could in turn create a bidding war for the Japanese giant. With all the discussions being at such an early stage of the negotiations, only time will tell what the future holds for Toshiba.
By Karamitsianis Christos Konstantinos, Athens University of Economics and Business
