Fujitsu [TYO:6702], the Tokyo-based IT conglomerate, has received a “substantial” number of bids for the sale of its 44.05% stake in air-conditioner maker Fujitsu General [TYO:6755], according to sources familiar with the situation.
Initial bids were submitted by 20 January as scheduled and came from both strategics and private equity bidders, they said.
Around 10 bids were received, according to the first source, who added that Fujitsu has yet to draw up a shortlist of preferred suitors.
The deal structure is expected to be similar to several other recent Japanese divestments with the successful bidder making a tender offer for the shares held by minorities prior to acquiring Fujitsu’s stake, according to the second source. Several sources said the process will lead to Fujitsu General being delisted.
The sale of the Japanese air conditioner maker, which has a market capitalization of JPY 396.3bn (USD 3bn), has been gathering attention from overseas heating, ventilation and air conditioning (HVAC) peers, mainly from Europe and US, widely, the second source and a third source said.
From the private equity side, MBK Partners is among those that have been looking at Fujitsu General, according to several sources. Two of these sources said Bain Capital has also shown interest. It is unclear, however, whether or not MBK Partners and Bain Capital submitted first-round bids, these same sources said.
Interest levels among global private equity firms are mixed due to Fujitsu General’s inflated valuation, sources said.
According to the fourth source, banks seem to be reluctant to offer a high-multiple leveraged buyout (LBO) loan in this case, as the business is mature. Around 5x-6x of debt/EBITDA would be a fair range for senior lenders. This makes it difficult for private equity buyers to generate a sufficient return from the deal, this source added.
Based on today’s closing price of JPY 3,625, Fujitsu General is trading at an EV/EBITDA multiple of around 15.6x for the year ending March 2023, according to Fidessa consensus data compiled by Factset.
Domestic industry leaders Daikin Industries [TYO:6367] and Mitsubishi Electric [TYO:6503] are trading at 11.6x and 5.2x forward EBITDA, respectively. International peers, including Johnson Controls International [NYSE:JCI], Lennox International [NYSE:LII], GREE [SHA:000651], Midea Group [SHE:000333] and Carrier Global [NYSE:CARR] trade at a median forward EBITDA of 12.11x, as per this news service’s calculations.
Fujitsu General’s higher trading multiple is, at least in part, reflecting expectations of a sale process and makes it challenging for any single private equity firm to acquire the company and generate an attractive investment return, this news service calculates.
For the nine months ending December 2022, Fujitsu General posted sales of JPY 256.7bn (USD 1.9bn), up 29.6% from the same period the previous year, while operating profits declined 28.8% to JPY 3.6bn, according to its latest financial statement.
The company is projecting sales to increase 37.3% to JPY 390bn for FY22 as a whole (ends in March 2023) and for operating profits to improve by 113.2% year-on-year to JPY 18bn.
UBS is acting as a sell-side advisor to Fujitsu, while Kanagawa-based Fujitsu General is being advised by Lazard, as reported in October 2022.
Fujitsu General has been mulling various scenarios for becoming independent from Fujitsu since November 2020 at least, this news service reported at the time. The company was already working with Lazard back then.
According to Fujitsu General’s 2022 integrated report, Fujitsu owned 44.05% of the company as of the end of September 2022, followed by The Master Trust Bank of Japan (Trust Account) with 7.59%, JPMorgan Chase Bank 385635 with 4.05%, JPMorgan Chase Bank 380072 with 3.47%.
Fujitsu General’s share price gained 0.7% today (27 January) to close at JPY 3,625. The stock is up 59.27% in the past 12 months.
Fujitsu, Bain Capital and MBK Partners declined to comment. Fujitsu General did not return requests for comment.
