Advantage in 7x Japan secondary sale

Advantage Partners will sell a coffee shop franchise to MBK Partners for about $480 million, highlighting a growing trend of GP-to-GP secondaries in Japan.

MBK Partners will acquire Komeda, a Japanese coffee shop franchise chain, from Advantage Partners and Sapporo Holdings, according to three separate firm statements. The Sapporo Holdings statement places the deal value at approximately $480 million.

The deal is expected to be closed within a month, according to MBK Partners director Daisuke Ikeda. This is a leveraged buyout for the firm, but the amount of debt funding used is still confidential. With a 100 percent stake – 80 percent coming from Advantage and 12 percent from Sapporo – MBK will gain complete control of the board, according to Ikeda.

The firm statement said MBK will focus on an expansion strategy for the company in Japan.

The equity for this investment will come from MBK Partners Fund II, which is almost completely invested, Ikeda said.

Advantage declined to comment on the returns, but according to a source with direct knowledge of the matter, this deal also represents a 7x return for Advantage Partners on its April 2008 investment in Komeda. Advantage’s original investment came from the firm’s Fund IV and was about 80 percent leveraged, according to Ichiro Otobe, principal at Advantage Partners.

This is the first exit out of Fund IV, according to co-founder Richard Folsom, and the firm hopes to have more exits this year.

Otobe believes that Komeda is an interesting case for Japan because even though the country’s market has been in decline for nearly a decade, the company has seen double-digit growth every year. MBK’s Ikeda adds that Komeda has located its shops in very strategic places, so that it is not in competition with other coffee shops like Starbucks.

Both Ikeda and Otobe believe the secondaries market in Japan will grow in 2013. For this particular deal, Advantage Partners spoke to some strategic buyers, but Komeda is already such a large company that it was difficult to find a big enough company with good synergy.

“Another private equity fund was a natural choice,” Otobe said.

Ikeda added that since the financial crisis, there are many secondary deals to be had in Japan because the competition has decreased for independent private equity firms.

With $5.7 billion assets under management, MBK Partners invests in large and mid-sized companies across Korea, Japan and Greater China. The firm is currently targeting $2.25 billion for its third fund, Private Equity International reported last year. MBK announced a first close on $1.25 billion in November, Ikeda said.

Advantage Partners has invested in 32 companies in Japan and currently has JPY 380.00 billion (€3.2 billion; $4.3 billion) assets under management. Aside from three new investments last year, the firm also held a first close on JPY7.4 billion on its latest IV-S Series Funds, according to Private Equity International’s data division.