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How can I put it? The wealthy KKR has made another move.

Not long ago, KKR announced that it would acquire a Japanese company for approximately 600 billion yen (approximately RMB 28.8 billion).

Fuji Soft is a leading software developer in Japan, founded in 1970, and has a history of 54 years. According to KKR's official announcement, the transaction will be mainly funded by KKR Asia Fund IV. The formal acquisition is expected to take place in the second half of 2024. The proposed acquisition price is 8,800 yen per share, and the overall acquisition price will also be around 600 billion yen.

In early August alone, KKR, a veteran PE firm, officially announced at least three M&A cases. In other words, no matter what the overall environment is like, 2024 will definitely be a year of rapid progress for KKR.

In order to exit, the largest shareholder is anxious

Let me first briefly introduce Fuji software.

The company was founded in 1970 and mainly provides software development, system integration services, product sales and outsourcing services for vehicle-mounted and communication equipment. Its large team of system engineers is a major signboard, with more than 10,000 people. In addition to Japan, Fuji Software has online stores in first-tier and new first-tier cities in China, such as Beijing, Shanghai, Shenzhen, and Hangzhou.

It is understood that Fuji Software has a high reputation in the Japanese system integration market, and their embedded systems and control software are one of the company's core technology products. For KKR, as a long-established leading system integrator, the acquisition of Fuji Software is their stepping stone to open up the Japanese IT service market.

Fuji Software's financial report shows that the group's sales will increase by 7% to 298.8 billion yen in 2023. The company's mid-term plan target by 2028 is annual sales of 435 billion yen, including the hope to develop new businesses in related fields such as artificial intelligence and fifth-generation wireless technology.

In the transaction with KKR, Fuji Software's idea was simple: it hoped to bring new customer sources to the company through the industrial resources of its financial backer, and "use KKR's expertise and network as an investor in cutting-edge technology companies to ignite its own growth. Developers can market their systems and software to companies in KKR's portfolio."

Hiroya Hirano, Deputy Executive Chairman of KKR Asia Pacific and CEO of KKR Japan, said, “We look forward to leveraging KKR’s global platform and industry expertise in the IT services industry to accelerate Fujisoft’s long-term growth and create greater value for Japanese companies and their customers.”

But for 3D Investment Partners, the largest shareholder of Fuji Software, if KKR can complete the acquisition of Fuji Software, it will really help it a lot in its exit.

3D Investment is headquartered in Singapore and was founded in 2015. It began investing in Fuji Software in 2019. As of now, 3D Investment holds a total of 21.45% of Fuji Software's shares, making it the company's largest shareholder.

The main reason for the eagerness to exit is that 3D Investment is extremely dissatisfied with Fuji Software's performance in recent years. As early as 2022, 3D Investment had asked Fuji Software to take measures to improve capital efficiency "so as not to fall behind its competitors." At the same time, it also submitted proposals at two shareholders' meetings, calling on Fuji Soft to appoint external directors recommended by the fund, and formally and publicly proposed to privatize the company in September 2023.

Fujisoft said in a statement that the Yokohama-based company received acquisition proposals from several private equity firms in September last year, adding that the proposals were made at the request of Fujisoft's largest investor 3D Investment and not by the company.

Fuji Software also said it has since set up a special committee of six independent directors to hold discussions with private equity firms.

Naturally, things did not go smoothly, so at the end of February this year, 3D Investment sent an open letter directly to Fuji Software's shareholders, requesting that Fuji Software fairly review the multiple acquisition proposals they had received from global private equity firms, and proposed the appointment of an external auditor to check the legality and fairness of the decisions.

How eager was 3D Investment to exit Fuji Software? In order to prove that exiting Fuji Software was the right thing to do, they prepared a 52-page PPT for other shareholders of Fuji Software.

In the PPT, 3D Investment first pointed out that Fujisoft was negative about the privatization of the company, such as "the board of directors did not disclose key due diligence materials to potential buyers, and therefore failed to take any measures to increase the company's value and promote an increase in the offer price." In order to counter Fujisoft's negative attitude, 3D Investment also "kindly" provided another solution: 3D proposed that if the board of directors rejected the privatization proposal, Fujisoft would repurchase 75 billion yen of shares within one year after the annual shareholders' meeting.

As for why 3D Investment wanted to exit Fuji Software so much, a cryptic explanation was given in the PPT: "Fuji Software overestimated its own 'intrinsic value' and underestimated the risk of failing to realize its ambitious plans." To put it simply, in the eyes of 3D Investment, Fuji Software was a typical example of someone who had high aspirations but low skills and had misjudged his true value.

However, judging from the current progress, KKR is paying for this 52-page PPT.

KKR is busy

Since 2024, KKR has been really busy.

A few days before and after announcing its intention to privatize Fujisoft, KKR also revealed two large acquisitions. One of them took place on August 2, when the US education technology company Instructure announced that it had reached a final agreement with KKR to be acquired for approximately US$4.8 billion (approximately RMB 35 billion), with the transaction price paid in full cash.

The amount of 35 billion yuan directly became KKR's largest acquisition this year. It is worth mentioning that Instructure's previous controlling shareholder, PE institution Thoma Bravo, will receive huge returns from this deal, with a net return of more than 20 billion yuan.

Another deal was on August 14, when KKR planned to acquire a corporate public relations department from British conglomerate WPP for $800 million. KKR said it was part of their broader financial growth strategy. For WPP, KKR taking over their public relations department can reduce debt and improve financial conditions.

Some industry insiders also analyzed that the acquisition is expected to greatly expand KKR's investment portfolio and may encourage new developments in business communications and public relations. KKR officials said, "This is consistent with KKR's overall strategic vision and predicts that digital transformation will accelerate significantly. This move may enhance KKR's investment influence in the corporate field and set a new precedent for business communication practices."

If KKR's acquisition pace is fast, its exit prospects are equally optimistic.

In May this year, Chief Financial Officer Robert Lewin said that if KKR's plan to exit its current investment in 2024 is implemented, KKR may realize $400 million in combined carried interest and investment income. According to the company's financial report, KKR's Realized Performanc Income (mainly reflecting carry income) in the second quarter of this year was $480 million, an increase of 220% compared with $150 million in the same period last year.

On August 1, co-CEO Nuttall also revealed that KKR expects to generate about $500 million in revenue from the sale of assets in the third quarter from transactions that have been announced or that KKR expects to complete. He said KKR expects 60% of that figure to be carried interest and 40% to be investment income.

Nuttall said the company sold about $600 million in assets at the end of the second quarter after wiring at least $500 million in a June press release.

In summary, KKR's activity is actually an abbreviation that the global PE market and M&A market have fully recovered and are beginning to boom. In addition to KKR, we can also seeBlackstone, Bain and other PEs are frequently carrying out various transactions. Some people say that this is a joint bottom-fishing by giants, while others say that this is a signal that the market will return to normal. But in any case, KKR has taken the lead.