Originally published in Nikkei Asia's “Henry Kravis: My Personal History"
Chapter 15
Panasonic and Hitachi sell subsidiaries
In 2010, four years after setting up our Tokyo office, KKR acquired Intelligence, a recruitment and employment services firm, from Usen, a major cable broadcasting company.
This was KKR's first acquisition in Japan and was significant for two reasons. First, we were able to buy a subsidiary from a Japanese company. As I shared earlier, Japanese executives were reluctant to sell their subsidiaries. Second, we proved that KKR could help reform and grow companies, as we sold the company for nearly double the purchase price three years later.
Private equity is not widely understood, and old caricatures about cost-cutting and layoffs are sometimes presented as truths. The reality is that you cannot create value and profitability by cutting costs -- you have to put money into the business for it to progress, for example by investing in research and development, creating new products, making the business more competitive globally or locally. We are investors who help improve companies by pouring human and financial resources into them.
We started trying to recruit Hiro (Hirofumi Hirano), who now leads KKR Japan, in 2005, when we began considering an expansion into Japan. We invited him to co-founder George Roberts' home in Menlo Park, California, and tried to persuade him to join us.
Hiro first agreed to join but backtracked afterward, saying, "I've got things I need to finish" at Nikko Cordial, one of Japan's major securities firms back then, which was involved in an accounting scandal at the time.
Disappointed, I told him that it was just a "cloud" over him and encouraged him to spend some time gaining more business experience. Hiro had nothing personally to do with the Nikko Cordial scandal, but he needed to see the turnaround through. It takes real leadership not to run away when things are hard, especially when you have an easy escape. We are fortunate to have many leaders like Hiro at KKR today. He eventually joined us in 2013.
We first detected a sign of a sea change in Japan in 2014, when we acquired Panasonic's healthcare subsidiary (now PHC), marking a notable decision by a leading Japanese company to sell off a noncore business.
Under our management, the healthcare firm pursued a growth strategy focused on acquiring businesses from foreign companies like Germany's Bayer. When Hiro and I later met with Panasonic's CEO, Kazuhiro Tsuga, in Osaka, he said he had been "amazed" by the former Panasonic unit's growth that resulted from our investment.
However, Hitachi was moving faster in terms of reform, selling off noncore businesses one after another.
I have met with Hitachi's top executives over the years. They have revived an underperforming Hitachi. Of particular note, Hiroaki Nakanishi, who served as president from 2010 to 2014, listened carefully to our proposals, and I sensed a "breakthrough" in the company. His successor, Toshiaki Higashihara, accelerated the sale of subsidiaries.
When a company needs capital for growth, selling noncore assets can be an effective means to raise funds. Higashihara chose this path. He was a hard-nosed go-getter who knew what needed to be done and had the ability to get things done. He had a farsighted way of managing and he understood the benefit of focus and partnering with us on their noncore subsidiaries.
This has been the most remarkable turnaround story I have seen in Japan and certainly one of our best partnerships with a company and management team. As a result, the employees, the shareholders and other stakeholders have all benefitted. The sharp rise in the company's stock price speaks volumes about how he took the right path in pushing through reforms. It's an impressive turnaround story that deserves more global attention.
From Hitachi, KKR acquired listed subsidiaries like Hitachi Kokusai Electric (now Kokusai Electric) and Hitachi Transport System (now Logisteed).
When we acquired Kokusai Electric in 2017, the company operated two businesses: a video and communications solutions business and a semiconductor manufacturing business. We sold the first business and focused on the semiconductor manufacturing business, supporting the company on talent acquisition in different markets and doubling the investment in research and development.
We leaned into our network to help the company hire strong local talent from leading players in markets like the U.S., Europe and China. We boosted headcount by around 30% in areas such as R&D, manufacturing, and in overseas markets to spur innovation and accelerate growth globally. By 2023, we were able to nearly double the company's revenue and increase its market share by around one third.
In 2023, KKR portfolio company Kokusai Electric listed on the Tokyo Stock Exchange as the largest-ever private equity-backed IPO and the largest in Japan in half a decade. It is today one of our best investments in Asia and globally.
But what I'm also very proud of is that all of the management team from when we first acquired the company has stayed on, which really speaks to the way we look to work together and build an ownership mindset.
If you ask Japanese top executives if they have a dream, many will answer "Yes." However, if you ask them if they will act on that dream, the number of "yes" responses will likely drop due to the fear of failure. They tend to choose the comfort of maintaining the status quo without taking risks.
This is a pitfall common across the world. I always tell people, particularly young people, never to say, "I wish I had."
If you have a dream, you have to go after it.