Nippon Active Value Fund (LSE:NAVF), an activist, Japan-focused investment trust and one of the top Japan equity trusts on the street at the moment, has facilitated an MBO of Sakai Ovex, a Japan-based firm focused on the dyeing, textile sale, and control equipment business.
Nippon Active Value has realised more than double the value of its investment, recording a 102.5% gain.
This is the only example of a public company in Japan engaged by activists being taken private in 2021 and it marks a significant milestone for NAVF. The Fund looks to capitalise on major reforms in Japanese corporate governance and the forthcoming Tokyo Stock Exchange reorganisation scheduled for April 2022, as well as relatively low valuations, to generate outsized equity returns for investors.
“We are delighted with the positive outcome of our nearly year-long engagement with the management of Sakai Ovex,” said Paul ffolkes Davis, Chairman of Rising Sun Management, the investment advisor to NAVF. “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.”
Nippon Active Value accumulated a stake of over 6% in Sakai Ovex by early 2021. The investment trust then initiated 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 ¥2350 per share, which was supported by like-minded investors. This initial proposal eventually led to the company’s own tender offer at ¥3810, crystallising a 102.5% gain on the position for the investment trust.
NAVF is an activist investor whose investment advisor has significant Japanese market knowledge: Rising Sun Management draws on the long experience in Japanese activist intervention of its principals to generate uncorrelated returns.
Increasing opportunity for activist funds in Japan
“The Japanese market offers ample investment opportunities for NAVF and we will look to build more momentum following this successful exit,” said ffolkes Davis. “This is just the beginning of our activity in the country.”
The Armchair Trader flagged Nippon Active Value in our list of the top Japan equity investment trusts to watch last month. We noted at the time that it had been building a position in Sakai Ovex that it had finally disclosed. Otherwise it likes to remain cagey about its positions. It remains an investment trust we will be following with interest.