In October 2023, Fumiyuki Kanai led the semiconductor firm the place he’s chief govt via Japan’s largest preliminary public providing since SoftBank’s 5 years earlier.
The IPO valued Kokusai Electrical at $3.6bn and triggered a $720mn payout for its personal fairness backers, KKR, which had purchased the enterprise from Hitachi in 2017 in a deal that valued it at ¥257bn, or roughly $1.7bn.
KKR’s exit marked a uncommon success for the personal fairness sector in Japan — good publicity that was a lot wanted because the hunt for offers turns into extra difficult and banks are extra stringent about funding them.
However for a very long time the 67-year-old boss of the chip tools maker was at a loss to clarify what the personal fairness trade really did.
“We had no thought precisely what personal fairness was about to start with,” admits Kanai. “We had a obscure concept that whereas we’re producers . . . all they do is simply transfer one thing from proper to left and become profitable.”
Kanai’s data of the mechanics of personal fairness needed to enhance quickly after KKR’s buyout ended a long time of possession by Japan’s Hitachi conglomerate.
He had motive to be cautious concerning the new possession construction. Even the nicely established personal fairness corporations have suffered some excessive profile mis-steps in Japan, together with KKR’s buy of Marelli, a automobile elements firm it purchased and rebranded from Nissan, which fell out of business after the pandemic.
However after a crash course in how personal fairness labored by the KKR banker assigned to assist the enterprise and help the CEO, Kanai says he turned more and more snug together with his buyout bosses, not least as a result of they really knew methods to run an IPO and may very well be a great tool for change.
Kanai, who has been Kokusai’s chief govt since 2018, after he moved over from Hitachi, says he’s now an advocate for personal fairness in a rustic that has change into engaging to the world’s largest buyout funds for its low borrowing prices and stress on corporations to enhance their valuations.
“I really feel that possibly buyers actually don’t respect having personal fairness as kind of just like the supporting spine for a enterprise for an extended time, within the shadows,” says Kanai.
“However if you wish to actually change your company construction in a really significant approach, then there’s a limitation to what you are able to do yourselves and subsequently personal fairness has a range of expertise on this house . . . possibly it’s higher that you just suppose you possibly can leverage or utilise [that] to essentially instigate that change,” he provides.
Kokusai produces high-tech machines that concentrate on atomic-layer deposition — permitting ultra-thin movies of some nanometres to be layered with nice precision — to make circuits on wafers (slices of semiconductor materials) in massive batches.
Within the group’s headquarters in Toyama, in north-western Japan, the massive machines are customised earlier than being shipped to purchasers around the globe.
The semiconductor trade has been buoyed by rising demand for chips throughout industries as assorted as gaming, automaking and synthetic intelligence. It has additionally change into a geopolitical concern, with international locations vying for crops and expertise whereas imposing restrictions on rivals.
Larger demand for the machines Kokusai makes helped drive up the corporate’s valuation earlier than the IPO and has contributed to its share worth greater than doubling since.
It has additionally given the corporate sufficient confidence to forge forward with plans to double the manufacturing capability at Toyama and construct a analysis and growth manufacturing facility at Yokohama, to the south of Tokyo.
Kanai says KKR helped to make adjustments to Kokusai earlier than the IPO, together with reshaping the group’s international community of managers and shifting the corporate in direction of much less complicated merchandise, the place demand will not be topic to as a lot volatility.
However the personal fairness agency additionally benefited from luck. Its buy from Hitachi was initially a easy guess that Kokusai could be extra extremely valued outdoors the conglomerate, slightly than any foresight about how the semiconductor trade would increase.
“It was a conglomerate low cost play . . . no person anticipated semiconductors to be this robust a sector,” says one one that was straight concerned within the buyout.
The renewed optimism that demand for semiconductors would stay excessive led not less than two strategic patrons to make gives for Kokusai earlier than the IPO, in line with one particular person with direct data of the matter.
KKR had additionally tried to promote the chipmaking tools enterprise to US-based Utilized Supplies in 2019. The $3.5bn deal fell aside in 2021 after it failed to realize approval from Chinese language regulators. Utilized Supplies nonetheless has a 15 per cent place within the firm.
Kanai joined Hitachi straight out of college in Japan, earlier than relocating to Singapore and shifting between the event and manufacturing sides of the enterprise. His instinctive administration model was robust and autocratic however as his profession progressed, he says he learnt some quite simple classes, together with the truth that merely shouting at subordinates was not an environment friendly technique to talk.
The fast paced nature of the chip trade meant it was essential he saved staff on aspect or he would simply have misplaced contact with what was taking place.
“After I really switched to the mass manufacturing manufacturing facility, there have been so many issues that I didn’t know. So I needed to depend on the data of my subordinates. Then I began reconsidering precisely how I needs to be partaking with them . . . It might be referred to as energy harassment now . . . I may very well be arrested if it had been now,” he says laughing.
Kanai has mellowed, each professionally and privately.
He used to unwind after a protracted day at work by partaking in some laborious consuming — and says he would “fall right into a ditch, damaging his swimsuit” so couldn’t maintain it a secret from his spouse. However now he relaxes by strolling his toy poodle each morning. He has given up consuming and smoking and has three youngsters and grandchildren to fill his free time.
However his concentrate on work stays sharp as he prepares for an additional interval of progress.
Japan is pushing to construct up its personal semiconductor sector, which has languished since a interval of dominance within the Eighties, each via investments and by forging shut connections with South Korea, Taiwan and the US.
Kanai says Kokusai’s IPO befell after a fairly brief and troublesome interval for semiconductor corporations, which he predicts is coming to an finish.
The corporate reported internet earnings of ¥22.3bn within the yr to the tip of March 2024, down sharply from ¥40.3bn the yr earlier than.
“This fiscal yr was . . . very poor. And subsequently, for [the] subsequent fiscal yr, we imagine the market needs to be recovering [and] rising by 20 per cent ranges,” Kanai says, at the same time as he predicts that extra difficult Nand chips won’t recuperate till “fiscal yr 2025”.
Kokusai has beforehand proven it could possibly bounce again rapidly from challenges. At the beginning of the yr a devastating earthquake hit the Toyama area the place its important manufacturing plant relies, but it was up and operating once more inside one week.
On a current go to to the manufacturing facility, the executives conducting a tour famous that after the earthquake, KKR was the primary to name to test in on everybody at Kokusai.
A day within the lifetime of Fumiyuki Kanai
5.30 Get up and stroll my canine. I don’t usually eat breakfast however I all the time have a glass of water and a probiotic drink.
7.15 Test emails and browse the papers on my technique to work. As soon as on the workplace, I attend conferences with the R&D and gross sales groups.
12.00 For lunch, I eat rice balls and sandwiches. I eat rapidly, normally inside about 10 minutes. Then I spend time planning and studying.
Within the afternoons I’ve conferences, both in-person or on-line, with suppliers and group corporations. I additionally attend scheduled administration and board conferences.
18.00 Go away work. On nights after I’m not having dinner with prospects, colleagues, or buyers, I’ll eat at house with my spouse. She is a superb cook dinner, and I prefer to take my time to take pleasure in her meals.
After dinner, we normally eat Japanese sweets (wagashi) and spend the night chatting about our days. I all the time finish with a shower, to clean away the fatigue.
22.30 To mattress.