Target Information

Advantage Partners, through its AP Fund, in consortium with Tokyo Century Corporation (referred to as "TC"), has announced the acquisition of Showa Denko Materials Co., Ltd. (the "Seller"), a wholly-owned subsidiary of Showa Denko K.K., involved in the energy storage devices and systems business (the "Target Business"). A final agreement was concluded on July 8, 2021, to proceed with this acquisition.

The Target Business traces its origins back to 1916 when the Japan Storage Battery Manufacturing Co., Ltd., the predecessor of New Kobe Electric Co., began manufacturing and selling storage batteries. With robust technical capabilities and strong customer connections within the Hitachi Chemical and Showa Denko group, the business has established a solid position as a key player in Japan's automotive and industrial storage battery markets. It has also expanded its reach internationally, establishing a global operational framework that includes markets in Thailand and Taiwan.

Industry Overview

In Japan, the storage battery industry is poised for significant growth, driven by increasing demand in the automotive and industrial sectors. The rise in electric vehicles and renewable energy initiatives has amplified the need for advanced storage solutions, underscoring the importance of this sector within Japan’s economy. As companies transition towards more sustainable energy sources, the role of storage batteries is becoming increasingly critical.

Market trends indicate a strong demand trajectory for lead-acid batteries, particularly as organizations seek reliable energy storage solutions. The ongoing expansion of e-commerce and cloud services is also contributing to a surge in demand within data centers and communication networks, further enhancing the prospects for the storage battery industry.

Moreover, with the global shift towards renewable energy sources, there are considerable opportunities for growth in lead-acid battery products optimized for environmentally friendly vehicles. Utilizing recycled lead within the ASEAN region presents an additional avenue for environmental impact improvement, highlighting the industry's contribution to sustainable practices.

Leveraging its existing technology and customer base, the Target Business aims to evolve from being merely a "battery manufacturer" to a "battery solution provider," which is anticipated to yield further growth and innovation as it expands its service offerings.

Rationale Behind the Deal

The consortium recognized the substantial growth potential of the Target Business and its capacity for generating social impact through Sustainable Development Goals (SDGs). By acquiring this business, they aim to capitalize on the predicted steady demand for automotive and industrial lead-acid batteries while creating stable cash flows.

Additionally, the consortium targets to enhance operations by developing e-commerce and cloud services, essential for increasing demand in data centers and telecommunications due to the proliferation of next-generation networks.

Information about the Investor

Advantage Partners (AP Fund) possesses extensive experience in supporting corporate carve-outs and making significant investments in industrial material manufacturers. Their track record includes successful investments in companies such as Fast Ford Technology, Fujitsu Interconnect Technologies, and Kyusai Co., demonstrating their ability to facilitate smooth transitions to independence and subsequent growth.

By applying this expertise, AP Fund is committed to supporting the Target Business's independence and long-term development, ensuring that they leverage all available resources to foster growth in the new operational landscape.

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The acquisition of the Target Business by the consortium is perceived as a strategic and potentially lucrative investment, considering the strong growth prospects within Japan's energy storage sector. The demand for storage solutions is expected to persist due to ongoing transformations in the automotive industry and the increasing adoption of renewable energy technologies.

The emphasis on transitioning the Target Business to a solution provider presents significant avenues for innovation, positioning it well within a competitive landscape driven by technological advancement and the shift toward sustainability.

The anticipated synergies between TC's existing operations, particularly in the automotive and renewable energy sectors, alongside the Target Business's capabilities, promise a fruitful collaboration that can enhance value creation. The partnership is also poised to contribute to a more sustainable economy while promoting social infrastructural developments.

Overall, this acquisition is likely to yield positive returns, aligning with the global shift towards cleaner energy solutions and demonstrating strong underlying demand for battery technology across various sectors.

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