Lixil Starts to Explore the Sales of Construction Group

Lixil, the once-acquisitive Japanese building materials conglomerate, is exploring the sale of its Italian construction and design group Permasteelisa, in what was expected to be the first of several major divestments by the company, people familiar with the matter said.

Global private equity managers said many of the deals struck by Japanese corporations since the start of Prime Minister Shinzo Abe’s “Abenomics” policies, under which borrowing costs have fallen, were beginning to come under pressure.

“Private equity is swarming around Lixil because they think that the new chief executive is going to be doing some big divestments,” said one senior Asia-based private equity executive.

Bankers familiar with the company said they were aware that it had mooted the idea of selling Permasteelisa, and had been in touch with at least one private equity group.

One Tokyo-based private equity investor said that the possibility of asset sales by Lixil arose from a distinct change in the character of the company since Yoshiaki Fujimori stood down as chief executive last year in the wake of a scandal concerning a German acquisition.

His emphasis had been on building the company via debt-fuelled acquisition, said the investor, while his successor, Kinya Seto, is more focused on consolidation and strengthening the balance sheet.

As part of an asset review, Lixil said on Wednesday that it would sell off its wooden building material subsidiary Hivic, with annual sales of $190m, to a Japanese private equity fund Polaris Capital for an undisclosed price. Lixil turned Hivic into a fully owned subsidiary in 2011.

Lixil refused to comment on market rumours regarding the potential sale of Permasteelisa, which it bought for €573m in 2011. The Italian company was best known for making the façades of London’s Shard skyscraper.

Lixil was formed in 2011 by the merger of five Japanese companies ranging from plumbing and carport specialists to the makers of bathroom fixtures and building materials.

Shortly after the conglomerate was formed under the leadership of Mr Fujimori, a 25-year veteran of General Electric in Asia and the US, it went on an outbound acquisition spree, racking up nearly €3.9bn in buyouts over a three-year period.

Between June and September 2015 it announced the buyouts of American Standard bathroom products for $342m and a similar German group, Grohe, for €3.06bn.

However, Lixil’s global expansion plans soon ran into difficulties. In mid-2015, a Chinese subsidiary of Grohe, Frankfurt-listed Joyou, dragged Lixil into a scandal involving China’s sprawling shadow banking industry.

Joyou had collateralised its Chinese factories several times and lent some of that money into a shadow lending pyramid in southeastern China that eventually collapsed. In June last year, Lixil warned investors it faced ¥66bn ($560m) in losses. Mr Fujimori stepped down in December.

A possible sale of Permasteelisa sale would back up the view of at least three global private equity firms that Japan’s elevated run of overseas acquisitions under Abenomics was now creating opportunities as the deals start to sour.

Last year, Japan set a record for outbound M&A denominated in yen, following a steady increase in activity since 2011 as companies sought growth away from a domestic market constrained by population decline.

But a large number of deals have proven difficult to integrate, prompting the Japan head of one private equity firm to say that it was “not surprising” that many of the deals signed during the overseas M&A spree had not been successful.



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BDC 309 : Oct 2023