Nippon Active Value Fund activism pushes Sakai Ovex into management buyout

Nippon Active Value Fund (“NAVF” or “the Fund”), an activist, Japan-focused Investment Trust, is pleased to confirm that its engagement with Sakai Ovex (“the Company”), a Japan-based firm focused on the dyeing, textile sale, and control equipment business, has resulted in the management’s buyout (“MBO”) of the Company. NAVF 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.

Paul ffolkes Davis, Chairman of Rising Sun Management, the investment advisor to NAVF, said: “We are delighted with the positive outcome of our nearly year-long engagement with the management of Sakai Ovex. 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.”

NAVF accumulated a stake of over 6% in Sakai Ovex by early 2021. The Fund 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 Fund.

NAVF is an activist investor whose investment advisor has significant Japanese market knowledge: RSM draws on the long experience in Japanese activist intervention of its principals to generate uncorrelated returns. Many smaller Japanese companies are under-researched and show rising balance sheet cash reserves, giving activists like NAVF the opportunity to pursue value-enhancing corporate reorganisation strategies that can result in significant share price increases. NAVF is able to deploy a wide range of activist tactics to drive shareholder value, boost company share prices, and generate investor returns.

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