Japanese PE is booming, but Japanese companies are still wary

PE dealmaking in Japan hit a record last year, but a survey shows many Japanese companies still see equity financing as a distant third option. Over the last seven years, Japanese PE dealmaking has risen steadily as investors increasingly favor the country for its cash-rich corporate balance sheets, stable financing environment and supportive governance reforms. According to PitchBook data, PE deal value reached $47.48 billion across 300 deals in Japan last year—a historical high for the Asian market.

A growing number of funds have created new and larger dedicated strategies for Japan. Alongside US major buyouts like KKR , Bain Capital and The Carlyle Group , which have expanded their Japanese fund allocations over the years, several other firms—including Warburg Pincus , KPS Capital and Advent International —have set up Tokyo offices in recent months.

However, a recent survey by the country's sovereign wealth fund, Japan Investment Corporation, suggests local companies remain hesitant about equity financing, including from PE funds and foreign investors.

The survey—which polled over 1,000 Japanese board members and finance and accounting executives from publicly listed and private mid-sized Japanese companies—found that Japanese companies still predominantly rely on traditional modes of financing for growth.

Nearly half (46.1%) of survey respondents said they rely on internal funds, while 35.5% rely on bank loans, compared with just 5% to 7% who perceive equity funding as an option, whether through IPOs, private placements or strategic investments.

When it comes to raising PE money, the top concern among Japanese corporates is a lack of management autonomy (41.4%), followed by a lack of familiarity with financing methods (27.4%).

Other concerns raised in interviews included unclear exit conditions, short-term demands, and insufficient understanding of their business by PE funds. These anxieties likely stem from their limited information about PE funds, wrote JIC in the report.

However, among those who did receive PE funding, the feedback was positive, with 62.5% indicating it was effective, citing value in how PE funds supported businesses through strategic planning, talent recruitment and operational efficiency.

Japanese corporates also exhibit a strong preference for local PEs over foreign ones. Of the respondents, 13.1% said they were eager to receive support from domestic buyout funds, compared to just 5.1% for international buyout funds, signaling a reluctance towards accepting foreign capital.

Some of the largest PE transactions in Japan, however, have been historically closed by international funds.

These include recent transactions such as Bain Capital's $5.37 billion acquisition of Japanese supermarket operator York Holdings from Seven & i Holdings , and Blackstone 's $3.5 billion take-private transaction of Japanese IT service provider TechnoPro .

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