Bain consortium secures $7.5bn Hitachi Metals deal

July 2021 | DEALFRONT | PRIVATE EQUITY & VENTURE CAPITAL

Financier Worldwide Magazine

July 2021 Issue

A consortium led by private equity firm Bain Capital has agreed to acquire all of the shares of Hitachi Metals Ltd in a deal worth $7.5bn.

Under the terms of the deal, the consortium, which includes two Japanese funds – Japan Industrial Partners and Japan Industrial Solutions – will pay ¥2181 per share to buy the 47 percent of Hitachi Metals not owned by Hitachi at a premium of 15.8 percent to the company’s closing price on Tuesday 27 April, the day before the deal was announced. The consortium will spend a further ¥382bn acquiring Hitachi’s 53 percent stake in the unit.

According to a statement released by Bain, the consortium recognises Hitachi Metals’ research and development leadership built up over many years, deep relationships with industry-leading customers and technological superiority in each of its businesses. In the future, Bain hopes to support the company’s management by enhancing Hitachi Metals’ competitiveness, particularly in high-growth sectors such as vehicle electrification. Upon completion of the deal, Hitachi Metals will be delisted from the Tokyo Stock Exchange.

“We will make full use of our extensive management support systems and investment track record, both in Japan and globally, to enhance Hitachi Metals’ future growth and improve corporate value,” said Yuji Sugimoto, managing director of Bain Capital in Japan. “While valuing the culture and strengths that Hitachi Metals has cultivated so far, we will do our utmost to maximize the interests of all stakeholders. As soon as the necessary procedures are completed, we will start the Tender Offer immediately and look forward to working together with the Hitachi Metals team as soon as possible.”

Rumours of a potential deal for Hitachi Metals first appeared in November 2020, with firms including Apollo Global Management and The Carlyle Group also reported to be in the running at the time. Hitachi Metals, which had a market value of around $7bn prior to the deal announcement, is the latest of Hitachi’s business divestitures, following the sale of its chemical unit Hitachi Chemical Co to Showa Denko and its diagnostic imaging business to Fujifilm Holdings Corp.

Since the global financial crisis, Hitachi has sold off 20 of its 22 listed subsidiaries. In September 2020, the company exited a $26bn UK nuclear power project. It also bought out its high-tech unit. Hitachi Metals was the biggest of Hitachi’s remaining legacy subsidiaries. The private equity industry was one of the primary beneficiaries from Hitachi’s subsidiary sales, with Bain, KKR, Carlyle and Apollo all acquiring assets from the company.

Hitachi Metals has long been considered one of Hitachi’s most important units, along with Hitachi Kasei, which Showa Denko acquired in 2020 and renamed Showa Denko Materials, and Hitachi Cable, which merged into Hitachi Metals in 2013. Hitachi Metals’ product portfolio ranges from specialty alloys to magnets to fighter jet parts, and the company holds high market share across a range of products. The unit is Japan’s top producer of tool steel and one of the world’s leading players in high-end ferrite magnets.

However, the unit has endured a number of significant challenges in recent years and is expected to have booked a record net loss for the second consecutive year through March totalling ¥46bn. The company’s magnet business, in particular, has struggled of late.

Hitachi Metals also announced in October that it would cut about 3200 jobs, or roughly 10 percent, of its employees, including through a voluntary retirement scheme.

Despites the struggles of Hitachi Metals, Hitachi is expecting to record a profit of ¥328bn in the current financial year, the company said in a separate statement. In March, Hitachi also acquired US digital engineering services company GlobalLogic for $9.6bn.

Richard Summerfield