KKR buys Panasonic Healthcare Co for $1.67bn

November 2013 | DEALFRONT | PRIVATE EQUITY & VENTURE CAPITAL

Financier Worldwide Magazine

Private equity powerhouse Kohlberg Kravis Roberts & Co LP (KKR) has agreed to acquire Panasonic Corp’s healthcare division in a deal that will likely represent the biggest buyout of the year in Asia.

Panasonic’s decision to divest the unit comes as it continues its efforts to restructure its business, in light of wide-scale losses. The company is rolling out a ¥250bn plan to reverse losses at its electronics business over the next two years.

The terms of the deal will see PHC Holdings (PHCHD), an operating company wholly-owned by KKR, buy all outstanding shares of Panasonic Healthcare for around $1.67bn. The sale will include all of the company’s related intellectual property and assets. Panasonic Healthcare is engaged principally in three core business areas: in vitro diagnostics, medicom, and biomedical. The unit produces digital medical-record systems and instruments that measure blood glucose levels.

Once the sale has been completed, PHCHD will make a third-party share allocation to KKR. Ultimately, KKR will take ownership of an 80 percent share of the company. Panasonic will retain a 20 percent stake in the venture; the unit will then be jointly managed by the two firms.

Both companies expect the deal to be completed by the end of March 2014, subject to approval by the relevant authorities and other customary closing conditions.

Despite the promising performance of the unit there had been suggestions that Panasonic had been looking to sell off its healthcare division since at least March. The company is attempting to recover from one of the most disastrous losses in Japanese corporate history. Indeed, in each of the last two financial years Panasonic has lost more than $7.5bn. By contrast Panasonic’s healthcare division generated sales of ¥110.21bn in the financial year ended in March. The unit’s strong performance is even more impressive when considered within the context of Panasonic’s wider economic outlook.

The Japanese electronics market has endured a difficult period of late, with many of the major Japanese electronics makers, including Sony Corporation and Sharp Corporation, beset with problems. The rise of rival electronics manufacturers in other emerging Asian economies, particularly South Korea, has helped to facilitate a sharp drop in sales for many Japanese manufacturers. Declining prices and a strong yen have also hurt Japanese electronics exports.

In light of the company’s economic plight, Panasonic opted to provide KKR with preferential negotiating rights for the healthcare division early in September. The New York based firm is rumoured to have beaten competition from Toshiba Corp and an investor consortium led by Bain Capital LLC in order to secure the deal for Panasonic Healthcare. The deal for the unit marks KKR’s largest investment in any Japanese company to date.

Although KKR did not confirm how it would finance the purchase, earlier this year the New York based firm closed a $6bn Asian focused investment fund – it’s second for the region. In 2007 KKR also raised a $4bn pan-Asian fund, and a $1bn fund focused on China in 2010. According to a statement in July, KKR has deployed more than $5.5bn in 30 companies throughout Asia. Speaking of the deal, Henry Kravis, co-founder and co-chief executive of KKR, said “Panasonic Healthcare has excellent market positions and high-level technical capabilities, and we believe it has significant growth potential. Panasonic Healthcare’s experienced management team and employees, our equity partner Panasonic, and KKR all share a common goal of working together as partners over the long term to support further growth of Panasonic Healthcare. Japan is a very important and attractive market for KKR, and our experienced team on the ground in Japan looks forward to leveraging KKR’s global expertise and experience to make this a highly successful partnership.”

The deal for Panasonic Healthcare represents KKR’s biggest major investment in the Japanese market since it acquired temporary staffing agency Intelligence Holding for $356m in 2010.

Richard Summerfield