• Initial proposals collected last month
• 3D Investment Partners seeks exit separately

Fuji Soft [TYO:9749], the Kanagawa, Japan-based embedded software developer and systems integrator, is weighing strategic options it could take, including privatization, against its activist shareholder, 3D Investment Partners, six sources familiar with the situation said.

The JPY 323.1bn (USD 2.1bn)-market cap company collected initial proposals from interested parties last month. Some of the proposals could contain a management buyout (MBO) option, the first three sources said. 

Global private equity firms are believed to be invited to join the process, the first and the second source noted. 

Bain Capital, KKR and other global private equity firms are considered as logical buyers, the first source added. 

SMBC Nikko Securities is serving as the financial advisor for this exercise, the first and the second source said. The firm was originally retained by the company as an anti-activist defense advisor, they said. 

Fuji Soft would know which course to take after assessing the proposals it has received. It is still at the early stage of the process and the situation remains fluid, the second and third sources noted. 

The company has been exploring measures to counter the actions/plans of its shareholder, Singapore-based investment firm 3D Investment Partners, the six sources said.

3D owned a 23.04% stake in the company as of 31 December 2022, according to Fuji Soft’s press release. 

3D has been arguing with Fuji Soft’s board that the latter has been sitting on the inefficient capital allocation and weak performance for a long time, as disclosed in 3D’s presentation material in November 2022. The investment firm pointed out that Fuji Soft has allocated its funds to the development of its own office properties too much compared with its peers and caused the low return on equity (ROE). It also said that the company is too focused on sales growth over profitability.

To have a say in the company, 3D nominated four candidates to the Fuji Soft board during the extra ordinary general meeting (EGM) held on December 2022. Fuji Soft agreed to include two of the candidates and were approved by the shareholders but the other two were rejected during the meeting, according to the Fuji Soft statement.

3D seeks exit

Prior to Fuji Soft’s call for proposals for strategic options last month, 3D had been seeking ways to exit from the company, the second, fourth, fifth and sixth source said.

A few months ago, the investment firm sent request for proposals (RFP) to private equity firms for its stake in Fuji Soft, they said.

It is believed that 3D might be exploring the possibility of working with a private equity firm that could propose a privatization to the company, they noted.

The fourth and fifth sources said that Fuji Soft has been attracting private equity firms for years, but the 3D-led exit process may not be that attractive for many PEs because the investment firm only has a minority position.

Moreover, there is a reputational risk if the bidder would be perceived to be aligned with the activist side, they continued. 

Rather than working with 3D, it would be better for a PE to serve as a white knight for Fuji Soft and lead the privatization by itself to facilitate the exit of 3D and other shareholders, the fourth and fifth source added. 

For the first six months (January-June) of 2023, Fuji Soft posted a revenue of JPY 151.4bn, up 7.2% YoY, and an operating profit of JPY 9.7bn, up 8.8% YoY, as disclosed. 

For the full fiscal year ending December 2023, the company is projected to post a revenue of JPY 300bn, up 7.6% YoY, and an operating income of JPY 20bn, up 9.5% YoY, according to the same documents.

Fuji Soft, which was established in 1970, has three segments: system integration, facility, and other businesses. The system integration business consists of embedded/control software and operation software, products services, and outsourcing. 

SMBC Nikko and 3D Investment Partners declined to comment.

Fuji Soft did not return a request for comment by the time of publication.

Fuji Soft’s share closed 0.93% lower at JPY 4,795 in Tokyo on Monday (2 October).