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Japan-focused activist Nippon Active Value forces Sakai Ovex into management buyout

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Nippon Active Value, a Japan-focused activist fund strategy, has pushed through a management buyout of Sakai Ovex, a Fukui-based dye and textiles company, following an almost year-long engagement campaign, generating a 102.5 per cent return on the position.

Nippon Active Value, which is advised by Rising Sun Management, realised more than double its original investment in Sakai Ovex as a result of the buyout, which is the first and only example this year of a public company in Japan engaged by activists being taken private.

“The untapped value of the business was something we identified immediately and the valuation of the MBO justifies our approach to engaging Sakai Ovex’s management and proposing a restructuring,” said Paul ffolkes Davis, chairman of investment adviser Rising Sun Management.

The activist strategy aims to capitalise on Japanese corporate governance reforms and the forthcoming Tokyo Stock Exchange reorganisation in April next year, along with low valuations, in order to generate outsized, uncorrelated equity returns.

Specifically, it targets small-cap, under-researched, publicly-quoted Japanese stocks which show rising balance sheet cash reserves using a range of corporate reorganisation strategies that can improve shareholder value, boost share prices and generate investor returns.

The Nippon Active Value Fund built a stake of more than 6 per cent in Sakai Ovex by early 2021 before launching a campaign to encourage the company’s management to conduct an MBO, arguing that the firm was significantly undervalued by the market.

In June, NAVF proposed an MBO at JPY2350 (USD21.35) per share, which in turn led to the company’s own tender offer at JPY3810 (USD34.61), crystallising a 102.5 per cent gain on the position for the fund.

“The Japanese market offers ample investment opportunities for NAVF and we will look to build more momentum following this successful exit,” ffolkes Davis added. “This is just the beginning of our activity in the country.”

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