How The Longreach Group Emerged as Japan's Leading Private Equity Firm in the Mid-Cap Segment

Over the past 20 months, global M&A activity has largely been subdued, but Japan has stood out as an exception. In 2023, the country recorded a 23% year-over-year increase in deal value, amounting to approximately $123 billion, according to Bain & Company. This surge was driven in part by private equity investors, with Japan becoming the largest PE market in the Asia Pacific region. Despite this growth, Japan’s private market remains small relative to other large economies, such as the US and the UK, which are estimated to be more than three times bigger. What do you believe to be the main drivers?

Broadly speaking, we identify three main drivers propelling the growth of Japan’s private equity market.

The first, and most significant, is that the structural reforms Japan has long required are now taking shape. Key action areas such as focus on shareholder value and more global business growth strategies  - concepts that were once merely on the horizon - are now firmly established. This shift has led to an increase in non-core asset sales by conglomerates and a rise in founder exits. As a result, structural deal flow has accelerated significantly, with the deal pipeline now robust and expected to remain so for the foreseeable future.

The second driver is more psychological but equally important: private equity is becoming increasingly accepted as a key player in the Japanese business ecosystem. In some cases, it is even viewed as a preferred solution over going public. This marks a significant change from the past and contrasts sharply with perceptions in parts of Europe or elsewhere, where private equity is often seen as predatory or focused solely on asset stripping. In Japan, private equity has earned its reputation as a creator of value for businesses, thanks to a strong and growing track record of successful deals. This positive perception is a testament to the contributions private equity firms have made, and continues to fuel growth in the space.

Additionally, private equity’s role has gained importance as activist investors increase their impacts. Notably, the Tokyo Stock Exchange (TSE) is pushing to remove under-performing companies from the exchange, and private equity is increasingly recognized as a clear and effective solution provider in these situations.

The third driver is Japan’s position as a stable and attractive market in a geopolitically troubled world. Japan offers relatively low borrowing costs, political stability, and a clear economic direction. By contrast, markets like China have caused significant challenges for investors, with policy changes that have locked up or destroyed value. Japan, on the other hand, provides a stable investment environment with exit liquidity, and serves as a safe harbor amid global uncertainty.

Finally, it’s worth mentioning the talent pool in Japan’s private equity industry. While the pool remains relatively small compared to more mature markets, it is steadily growing. This is a crucial factor for sustaining market activity, as a sufficient supply of talent is necessary for executing deals and managing portfolio companies effectively. The gradual expansion of the talent base is easing previous constraints on the market and contributing to its overall growth.

Historically, Japanese companies were reluctant to divest or to sell their businesses, particularly to foreign investors, as such moves were often seen as a failure of management. However, this mindset among Japanese CEOs has undergone a profound transformation. What motivated this change in mindset?

Private equity firms in Japan have done an excellent job of building relationships and positioning themselves as solution providers. A great example is our deal with Fujitsu Components Limited. Fujitsu had an underperforming, non-core asset and sought to divest it to refocus capital on their core business. Longreach provided the solution through our buyout of the business. This is a textbook case of how private equity can step in to provide value while addressing a corporate need.

Similarly, we’ve seen success in deals involving younger founders. Rather than selling their businesses entirely or pursuing an IPO, these entrepreneurs can partner with us to retain a significant share in their companies. Our work with Dr.stretch exemplifies this model, demonstrating how private equity can align with founder interests while driving growth and transformation.

Private equity firms have effectively marketed and positioned themselves, fostering a shift in corporate Japan’s mindset. This shift encourages a stronger focus on shareholder value and company performance. As more deals are completed and more companies achieve success under private equity stewardship, the perception that financial success is incompatible with looking after employees and customers is gradually fading. The more success stories emerge, the clearer it becomes that profitability and stakeholder welfare are complementary, not conflicting.

The broader narrative of Japan’s corporate landscape since the 1980s has often been one of missed opportunities, particularly in terms of investment and global competitiveness. As competition from China and South Korea eroded market share for many large enterprises, Japan struggled to adapt. However, private equity is playing a pivotal role in reversing this trend. Japan is rediscovering that to succeed globally—and to do right by employees, clients, and shareholders alike—businesses must be financially successful and capable of competing for capital at international performance standards. Growth and reinvestment require not just cost-cutting but sustainable profitability. Simply cutting costs is, in many cases, just a slower path of decline.

Private equity is proving, case by case and deal by deal, that financial success is fundamental to serving broader stakeholder interests. By demonstrating that making money is essential for reinvestment and long-term growth, private equity is helping reshape the corporate mindset in Japan.

In recent month, a cloud of apprehension among investors has slowly begun to materialize. At the core of those worries has been the argument that Japan’s most recent performance is overly reliant on international market conditions and macroeconomic factors. Looking at 2025, how do you expect the macroeconomic environment to evolve?

If, as many expect, President Trump’s policies reignite US inflation and force the Federal Reserve to raise interest rates again, it will become increasingly difficult for Japan to maintain its ultra-low interest rates without further devaluing its currency. Japan will likely need to move toward renormalizing both its currency value and interest rates—the key question being how quickly this can be achieved.

Personally, I lean toward a more aggressive approach, believing that Japan will need to act decisively and find sustainable solutions. A weak currency cannot support long-term prosperity. To recover its economic strength, Japan must pursue wage appreciation—most importantly, real wage growth. The pace at which this can be achieved will determine how quickly Japan can restore consumer purchasing power, which in turn supports higher interest rates in a healthy economy with moderate inflation.

Moreover, Japan faces additional challenges stemming from its demographic decline and labor shortages. To attract and retain a sufficient workforce, even immigrant labor, competitive wages are essential. For instance, TSMC’s higher wages at its Kumamoto plant demonstrate how wage adjustments are already necessary to meet labor demand. These pressures could help drive a more virtuous cycle of wage increases, allowing for a normalization of interest rates and currency value. Ideally perhaps, the yen should next stabilize around a 130 range, though this will be more challenging if the Federal Reserve continues to hike rates.

Despite these challenges, I remain relatively confident about Japan’s prospects. As a stable nation in an increasingly unstable world, Japan offers a degree of shelter that many markets cannot. Its strengthening integration into Western supply chains is another positive factor. That said, Japan will also need to carefully navigate its evolving economic relationship with China, which remains fundamentally significant and complex.

Ultimately, I am optimistic that Japan will find its path forward. It has the capacity to balance these pressures and emerge with a stronger, more sustainable economic foundation.

Can you run us through the history and evolution of The Longreach Group?

I became a senior investment banker at a young age, as CEO of UBS Japan, Chairman of Asia-Pacific investment banking  and serving as a board member of the global investment bank. While I gained valuable experience, I felt a strong desire to pursue something more entrepreneurial. I also had a clear sense that Japan was on the cusp of opening up to a more U.S.-style private equity model. I could see the opportunity emerging.

Through one of the deals I was working on, I met Masa Yoshizawa, who was at Morgan Stanley at the time. We quickly realized that we shared the same thesis about Japan and the opportunities that could arise if we were able to create a firm that combined global best practices with excellent local execution.

We carefully analyzed the market to determine where we could make the greatest impact and settled on the upper mid-market segment. Beyond its inherent attractiveness, this upper mid-market segment offered us the chance to differentiate ourselves. We recognized that by leveraging global sector expertise and cross-border execution skills—both in deal-making and in driving value creation and exit strategies—we could bring something unique to this space.

While many firms in the large-cap space already possess these capabilities, the mid-cap market lacked a distinctly global and cross-cultural approach. This gap provided us with the opportunity to carve out a niche where we could apply our vision and make a real difference.

What synergies are you able to create between your Tokyo and Hong Kong offices?

Our main office is in Japan, but our Hong Kong office plays a critical role in our operations. It houses our global COO/CFO, oversees global fundraising functions, and has our investment team focused on cross-border deal and value creation activities. This includes helping Japanese companies expand internationally and assisting international companies entering the Japanese market.

The synergy between our offices provides us with a significant advantage. The Hong Kong presence equips us with physical expertise, local market knowledge, and cultural fluency, enabling us to effectively navigate cross-border transactions between Japan, Asia and the rest of the world. If we were based entirely in either Hong Kong or Tokyo, we wouldn’t have this edge.

From LCP1 to LCP3, THE LONGREACH GROUP has focused on three historical thematics: Industrial and Technology, Business Services, and Consumer Related. Those thematics are quite different in scope, ranging from strong consumer franchises such as McDonald’s Japan to technology companies such as Fujitsu Components (now FCL Components). What allows THE LONGREACH GROUP to perform in those very different sectors?

From an investment strategy perspective, our goal is to maintain healthy diversification within our portfolio. We avoid over-concentrating in any one sector, aiming instead for a balanced approach that aligns with strong and broad deal-sourcing capabilities across our targeted industries. Across the three sectors we focus on—consumer, industrial, and business services—we often encounter similar deal types, such as founder succession deals, corporate carve-outs, and bolt-on acquisitions. This commonality in deal types allows us to apply a consistent approach across sectors.

In our value creation playbook, while the specifics may vary by sector, our overarching approach remains consistent. We acquire a controlling position, develop a clear execution plan, and focus on analyzing and revitalizing the business. This systematic and disciplined methodology is applied across our three thematic areas.

We also prioritize businesses that are relatively insulated from macroeconomic and geopolitical risks. For instance, in IT-related services, we address chronic labor shortages, as demonstrated by our work with J-CEP in the construction sector. J-CEP specializes in recruiting, training, and deploying construction field managers to sites across Japan, benefiting from strong tailwinds that are independent of the overall construction market or real estate prices.

In the consumer sector, we focus on middle-class products that leverage Japanese quality and branding as a competitive edge. For example, we look to transform Japanese café chains into cross-border assets by catering to inbound tourists or expanding into new markets. Similarly, we aim to take Dr.stretch into Southeast Asia, enhancing its brand recognition and market presence.

In the industrial space, we steer clear of companies with high technological or geopolitical risks. Instead, we focus on businesses with a precision manufacturing edge or niche strengths that allow them to excel without direct exposure to regulatory or geopolitical volatility.

These three sectors, while diversified, share common themes that underpin our strategy.

What advantages does your focus on the mid-cap space provide you with?

Relative to the large-cap market, the mid-cap space in Japan is significantly hollowed out. We broadly estimate that less than 10% of the dry powder in Japan flows to the mid-cap space, despite substantial deal flow. As such, and especially in comparison to the large-cap segment, our space has more deal flow relative to the available capital. This imbalance is a key differentiator and resonates strongly with our investors, as we remain committed to our strategy and avoid expanding into the large-cap segment.

In the mid-cap space, our ability to nurture long-term relationships and avoid auctions is a significant advantage. Notably, our last four deals have been exclusive, which is nearly impossible to achieve in the large-cap space. With less capital chasing deals, a lot of the sellers’ decision-making isn’t just about pricing, but about finding the right partner to work with, which aligns well with our approach.

We also differentiate ourselves by presenting as a Japanese firm with global and cross-cultural capabilities. In the market, there are numerous domestic competitors without global expertise, and global firms with strong capabilities but remote offshore decision-making. We bridge that gap by being truly local while offering robust cross-border capabilities.

For instance, when we approached the founder of Dr.stretch, we could confidently say we’ll work with them to expand into Asia and beyond. Similarly, when we worked with Wendy’s, we crafted a creative, market-specific solution: acquiring First Kitchen together with the Wendy’s franchise to create a tailored offering for Japan. Another example is our deal with DXC Technology, to acquire Japan Systems, a non-core business with a complex going-private objective. We structured and executed a solution that allowed DXC to achieve its strategic goals and Japan Systems to embark on a revitalized growth strategy with Longreach.

These tailored approaches are possible because of our mid-cap focus and capabilities suite. In this space, we can put together bespoke structures and solutions that wouldn’t be feasible at a larger scale. This flexibility and ability to craft highly specific strategies are core to our success and the value we bring to our investees and investors alike.

How do you create those long-term relationships prior to the actual dealmaking that allow you to avoid auctions?

Building long-term relationships involves several dimensions, but it starts with a proactive, long-term coverage model focused on the people and organizations we believe are critical for future deal flow. The key is not to begin by discussing deals, but by engaging in meaningful conversations about strategies and challenges we can help address.

When we first meet with a CEO, we don’t arrive with a pitch book detailing the businesses we’re looking to buy. Instead, we share our observations about their business portfolio, highlight opportunities, and respectfully discuss areas they might consider divesting. These conversations, held consistently over time, form the foundation of strong relationships. Internally, we measure the quality of these interactions through specific KPIs and remain patient in our approach. For example, when assisting a conglomerate with its business planning, we might identify a subsidiary they intend to divest three or four years down the line. By engaging early, we position ourselves as a natural partner when the time comes, often years in advance of a potential deal.

Track record is another essential element. Over the years, we’ve established ourselves as a trusted partner, with a proven ability to execute complex transactions. In many cases, the companies we worked with were engaging with private equity for the first time. Notable examples include our carve-out deals with Panasonic, Hitachi, Suntory, and Sapporo—all first-time private equity transactions for these firms. These successful case studies have reinforced our credibility and reputation as a reliable, capable partner.

Ultimately, patience is critical. Building long-term relationships requires time, consistency, and a commitment to delivering value, often well before a transaction is even on the table. And again, patience is key!

Out of all the deals you have done, which is your favorite?

That’s like asking a parent to choose their favorite child—it’s a tricky question. Among those that have worked well, one that stands out is the McDonald’s Japan deal. It was an interesting structure that supported McDonald’s recovery in Japan and demonstrated that a start-up firm like ours—then the "new kid on the block"—could execute complex transactions successfully. It’s a bit nostalgic for me because it marked a defining moment for our firm and helped establish us in the business.

Another deal I hold in high regard is the Sanyo Logistics exit in 2012. At the time, Japan was grappling with deep deflation and a strong currency, making it a particularly challenging environment. Exiting successfully and creating value under such tough macroeconomic conditions was a significant achievement and one that stands out in my memory.

Quasar is another favorite, partly because I was deeply involved as the chairman of the company. We faced incredibly difficult circumstances, having acquired the business in mid-2019, right before the COVID-19 pandemic. In 2020, we managed to build a factory in Thailand within just 10 months, followed by another in Singapore, and then entered the Japanese market despite borders being effectively closed. These accomplishments are a testament to the resilience and intelligence of the management team, as well as the commitment we brought to the business. We crystallized the value creation with a 7x deal MOIC return to our investors. It’s a deal I’m particularly proud of.

Looking back at your career at THE LONGREACH GROUP, is there something you wish you would have done differently, and what did you learn from it?

The practical answer is that I wish we could have raised LCP2 before the financial crisis hit. It would have been a faster and smoother path compared to navigating the fallout from the Fukushima disaster and a yen at 80. Unfortunately, timing is everything, and we were hit by generational disruptions that made that period particularly challenging.

Looking ahead, one area where I see room for improvement is in continuing to push hard to bring more global management talent into our portfolio company management teams. Bridging cultural differences between Japan and the rest of the world remains critical, and it’s something we need to prioritize as we evolve.

That said, it’s been an incredible journey—an adventure, really—despite the hurdles we’ve faced, including the Global Financial Crisis, Japan’s deflationary decades, COVID, Trump trade wars, etc. In this business, you don’t just need to work hard; you also need to work smart. Success comes from navigating these challenges and maintaining your position as a safe haven for investors.

Not every fund will be a superstar, but over time, you must deliver premium returns and consistently rank among the top-performing options for your investors. While there may be occasional allowances, in the long run, there are no excuses. Investors will eventually move their money elsewhere if you don’t deliver.

The great thing about private equity, though, is that the longer you work in it, the better you get. It’s not like investment banking, where the relentless chase for deals can lead to burnout. In private equity, you’re building relationships for the long term, building value, gaining and transmitting knowledge, working to deliver consistently attractive returns to investors. Wisdom and improving performance come with that long term commitment.

We now have people in our firm who were only school kids during the last major financial crisis in 2008. Part of our mission is to transfer the knowledge and experience we’ve gained through these cycles to the next generation. That’s one of the most rewarding aspects of this work—both for the businesses we support and for the people we develop within our firm.

What goals or objectives would you like to achieve next?

Our goal is to continually improve at what we do, grow sensibly, and establish ourselves as the best in our field. We want to be the first choice for anyone with a business they truly care about and want to see succeed. We also aim to attract and retain the best investors—those who are also the most demanding—because earning their trust reflects the strength of our capabilities. Our broader mission is to become a firm of elite, global standing that bridges Japan with the rest of the world, creating connections that drive meaningful value on all sides.

Reflecting on my career, it’s interesting how I ended up in Japan. It happened almost by accident. In 1999, I moved here to take on the challenge of turning around UBS’s business in Japan—a role no one else wanted at the time. My family name is Chiba, but my parents were Hungarian refugees to Australia who anglicized our family name, changing it from “Csiba” to “Chiba.” When I arrived in Japan, many people assumed I was Japanese because of my name. Perhaps that was a competitive advantage I did not deserve!

One of the key lessons I’ve learned throughout my career is that taking risks others shy away from—when combined with confidence and hard work—can lead to opportunities and outcomes that those on more conventional paths might never experience. Sometimes, the unconventional route brings the most rewarding journeys.

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https://www.longreachgroup.com/