In mid-2024, Japanese tech company Fuji Soft found itself at the center of a heated bidding contest between two private equity giants – KKR and Bain Capital – which was ultimately won by KKR. Fuji Soft is an IT services and software company that offers cloud computing and software product solutions to primarily enterprise clients. The single largest shareholder, Singaporean investment manager 3D Investment Partners, had been encouraging a PE privatization of the company, believing that this could boost its value. Industry attractiveness as well as the company’s potential for improved profitability under new ownership sparked sponsors’ interest in the target. As a result, private equity firms KKR and Bain Capital entered an intense and lasting bidding war to determine the control of Fuji Soft.

Summary of Events

​In August 2024, KKR started the bidding war with an initial tender offer of ¥8,800 per share ($61.88 equivalent), which was at the time a 12% premium to Fuji Soft’s trading price and implied an EV of almost $3.7 billion. Bain Capital responded in September with a tender offer of ¥9,450 ($66.45 equivalent), which is a 7% premium to KKR’s initial tender offer. It is important to note that Bain Capital stated that its offer was contingent on the presumption that it receives full-fledged support from Fuji Soft’s board.
 
In October 2024, KKR launched an offensive. They started by acquiring shares through the open market in the first part of two-part tender process, reaching a threshold stake of 34%. With this stake, KKR officially had a “blocking share”. Much of their shares came from investment managers 3D Investment Partners and Farallon Capital. In this stage of the offensive, they also sought to leverage their strong relationship with the existing board of the company, while Bain gained the support of Hiroshi Nozawa, the company’s founder, and his family, which hold a stake of c. 18.5%.
 
Only by November 2024 did KKR officially outbid, in nominal terms, Bain Capital. Issuing a tender offer at ¥9,451 per share ($61.63 USD equivalent) a day after Bain had offered ¥9,450 per share, KKR sought to expedite the acquisition process – given that all the other pieces were in place. KKR also declared that it would pay this price to all first-stage shareholders once it is able to gain more than 50% ownership. At this point, Bain was pushed out of the race. The acquisition battle was officially concluded on February 17, 2025, when Bain Capital acknowledged its withdrawal from the market following conversations with Fuji Soft’s founder. 
 
KKR would subsequently increase their bid to ¥9,850 ($64.92 USD equivalent) on February 4, 2025, to move towards the privatization process and to reflect a nearly 3% rally in the USD/JPY spot rate. This final tender offer implied an EV of almost $3.88 billion. KKR has an almost 57% stake In Fuji Soft as of March 2025.
 
On March 24, 2025, KKR and the founding family signed a Memorandum of Understanding in support of KKR’s acquisition of 100% of Fuji Soft shares – a complete privatization of the company, squeezing out minority shareholders and consolidating the ownership of the company.

Fuji Soft share price (​¥)

​​An important dynamic to consider in this bidding war and KKR’s hostile takeover is the tension between the board of Fuji Soft and the founding family. Throughout the contest between the two financial sponsors, Fuji Soft’s founding family supported Bain Capital, whereas the board of directors supported KKR as a future investor. The ultimate success of KKR demonstrates that economic interests prevail in the modern corporate system, even in a culture such as Japan’s – which places importance on the preferences of founders more than most.

Technical Definitions

​In the context of KKR’s bidding war for Fuji Soft, a tender offer is an offer made by an individual entity towards the entire market to buy out the entirety of the shares of a company at a given price. This price is usually offered at a premium to the current or recent average share price. For example, as mentioned, KKR offered to buy Fuji Soft shares at a 12% premium to the current market price.
 
A hostile takeover is the process of accumulating shares, and in turn, influence, over a company in a way that is unamicable towards the board of the company. This term is common in private equity and activist investing, as profit-maximizing investors often pressure portfolio companies into forgoing traditional values and severing off unprofitable projects and business units – often in the form of carve-outs – to boost baseline profitability.
 
The squeeze out process is the process by which a company looks to delist a company by buying out all its shares – effectively aiming for a 100% ownership. Japanese law is particularly amicable to squeeze outs, and in many cases, it mandates the forcible sale of minority shares to the majority shareholder at a specified price. Japanese law contains a clause detailing the validity of this process, usually called “share exchange”).
 
In Japan and many other countries, a company is said to have a blocking share in a company (usually at over 33.3%) when it has an established position that gives it the power to veto special resolutions, such as mergers and acquisitions, restructurings, and squeeze outs. With this share, KKR could seriously impair the efforts of other buyers – notably Bain Capital – to build a controlling interest in Fuji Soft without KKR’s cooperation. 

Target Overview

Fuji Soft Incorporated was founded in 1970 and based in Yokohama, Fuji Soft Incorporated specializes in embedded software development for automotive and machine control systems, as well as business software and IT infrastructure services. Originally established as a private company, the company went public by listing on the Tokyo Stock Exchange on September 2, 1998.
 
Apart from these activities, the company also deals in office leasing, data entry, contact center management, and regenerative medicine. Its expertise in AI and AI-driven automation solutions make it an important partner for the national industrial and automotive sectors.
 
Currently, the company trades at around ¥9,766 per share ($65.40) with a market capitalization of ¥658.3 billion ($4.4 billion), figures that appreciated following the bidding war. As of December 2024, Fuji Soft reported a software engineer employee base of 10,000, and an annual revenue of ¥317.5 billion ($2.1 billion). It is distinguished by its prevalent fixed asset base, with a commercial real estate portfolio valued at over $1 billion.

Historical Financial Performance

Over the past five years, Fuji Soft has consistently grown its revenues at 6-8% annually, achieving a CAGR of approximately 7.14% between FY2020 and FY2024. It maintained constant EBITDA and EBIT margins, at around 8% and 6.5%, respectively. Despite its stable growth, Fuji Soft's profitability metrics trail behind global competitors, highlighting a potential opportunity for private equity investors to implement operational improvements. According to Mitsunobu Tsuruo, an analyst at Citi, Fuji Soft has been perceived as the “underdog of Japanese IT service companies.” The company's low margins are primarily due to its position at the lower end of the value chain and its limited ability to pass on price increases.
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In its “Mid-term Business Plan 2028” announced in February 2024, Fuji Soft set a vision of “becoming the leading company providing systems/software & services in the IT and operational technology (OT) field.” In FY2024, the first year of the plan’s implementation, Fuji Soft achieved a record high revenue and operating income of ¥317.5 billion (up 6.2% YoY) and ¥22 billion (up 7.8% YoY) respectively, with an operating income margin of 6.9%. However, the growth in net profits was primarily due to ¥7.89 billion in nonoperating income, as seen by the constant EBIT margin.

Source: FactSet

Market Position

Comparing the financial performance and valuation of Fuji Soft with its peers in the industry, namely NS Solutions, BIPROGY, and TIS, can serve as a handy benchmark for assessing the market position of Fuji Soft.
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NS Solutions is a subsidiary of Nippon Steel Corporation specializing in IT consulting and system integration. From the company's consolidated financial statements as of March 31, 2024, NS Solutions recorded revenues of ¥300 billion with an increase of 5% year over year. Operating income was ¥24 billion, which attained an operating margin of 8%. The net income of the company was ¥16 billion with a net profit margin of approximately 5.3%.
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BIPROGY Inc., formerly known as Nihon Unisys, is a prominent player in the Japanese IT services industry, offering system integration and outsourcing services. In its financial results for the fiscal year ending March 31, 2024, BIPROGY reported net sales of ¥320 billion, marking a 6% increase compared to the previous fiscal year. Operating income was ¥26 billion, or an operating margin of 8.1%. Net income attributable to the owners of the parent company was ¥18 billion, with a net profit margin of 5.6%.

TIS Inc., Japan's leading IT services firm, is involved in system integration, cloud services, and software development. During the fiscal year ended March 31, 2024, TIS posted net sales of ¥450 billion, up 7% from the previous year. Operating income was ¥40 billion, which translated into an operating margin of 8.9%. Net income attributable to the owners of the parent was ¥28 billion, which was a net profit margin of approximately 6.2%.

Source: FactSet

​​While Fuji Soft has posted an operating income margin of 6.9% in FY2024, both NS Solutions and TIS have posted higher margins of 8% and 8.9%, respectively. However, Fuji Soft's net profit margin of 6.7% is slightly higher than BIPROGY's 5.6% and TIS's 6.2%, but we can attribute this to the presence of nonoperating amounts. These comparisons show that while Fuji Soft has maintained consistent revenue growth, there is scope for increasing profitability to be closer to industry norms. Streamlining operations and moving up the value chain could be strategic possibilities for Fuji Soft to pursue in its bid for higher margins and valuation multiples.

EV/EBITDA multiples of Fuji Soft and its comparables in 2023 (FactSet)

Data from 2023 (FactSet)

In terms of multiples (FY2023 figures considered to exclude the augmentative effects of the bidding war), Fuji Soft leads the group with the highest EV/EBITDA multiple of 15.6x, significantly higher than the group average (9.8x) and median (10.3x). Considering the P/E ratio, Fuji Soft leads with 31.75x, over double that of most of its competitors. This shows a high valuation per earnings, consistent with additional proof of investor faith in future earnings. From this, we can deduce that the market is optimistic about the company’s opportunities for growth, improved profitability, and market positioning. A further important factor to consider is that the project to take Fuji Soft private has been ongoing since mid-2023, which played a role in the increase of the share price.
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Interestingly, despite this high valuation, Fuji Soft's market capitalization (¥601 billion) and enterprise value (¥652 billion) are among the group's lowest. Such contrast indicates that Fuji Soft is a relatively smaller company being valued as equally—or better—than significantly larger peers, pointing to its high market attractiveness or growth potential. Overall, Fuji Soft is clearly seen as a high-growth or high-quality company in this peer group, with valuation multiples that reflect high investor optimism, even relative to larger and more experienced rivals.

Sponsors Overview

KKR & Co. Inc.

​KKR is a global investment firm specializing in private equity, real estate, credit, and infrastructure investments. Founded in 1976 and headquartered in New York, KKR manages over $500 billion in assets across multiple sectors and geographies.
In Asia, KKR has strategically expanded its presence, investing significantly in Japan and other key markets. Since 2017, KKR has invested over $6 billion specifically within Japan, targeting technology, IT services, and infrastructure sectors. It aims to capitalize on digital transformation and technological innovation trends. Recent notable investments include acquisitions of Hitachi Kokusai Electric and Yayoi, a leading software provider, demonstrating its commitment to the technology and software landscape in Japan.
KKR's strategy in Asia, particularly within the technology sector, is focused on the goal of long-term value creation through operational restructuring, technology modernization, and targeted M&A. The firm seeks to leverage its extensive operational expertise and global resources to promote growth in portfolio companies by enhancing efficiency, investing in cutting-edge technology, and using acquisitions to consolidate otherwise fragmented industries. KKR is known to be a proactive and transformative investor. It is able to use unorthodox investment methods to reach its goal of value creation through operational improvements.
 
Bain Capital

Bain Capital is another major global private equity firm, founded in 1984 in Boston, Massachusetts. With $165 billion in assets under management, Bain Capital has a strong focus on technology, software, and industrial investments.
In Japan, Bain Capital has made notable acquisitions, including Toshiba Memory (now Kioxia) and Works Human Intelligence, both of which are technology-driven investments. Bain’s interest in Fuji Soft came from its goal to consolidate Japan’s IT sector, using its experience in scaling enterprise software businesses.

Strategic Rationale

Japan’s accelerating and noteworthy digital transformation, encouraged by private sector upgrading and government support through mandates, is strongly expanding the demand for cloud computing, cybersecurity services, as well as for AI technologies. Fuji Soft is strategically positioned to respond to this demand, as it has an established market presence and a diversified customer base. This customer base comprises leading automotive and industrial corporations. The company’s consistent revenue growth over the past five years (7.14% CAGR) shows that it has a strong and expanding presence and that it is able to respond to these new opportunities. This, together with the company’s specialized capabilities in embedded software and system integration, made it a very attractive investment, which makes sense considering KKR and Bain Capital's growth objectives.

In contrast to bigger rivals, Fuji Soft has a distinct market niche and makes use of its expertise in sectors such as manufacturing, financial services, and automotive. These all together represent c. 63% of its revenues. These sectors require a high level of precision and technological sophistication, resulting in strong customer retention rates above 90% and securing high-margin contracts. The company's specialized focus has allowed it to maintain stable EBIT margins around 6.5% and EBITDA margins near 8%, despite competitive pressures.

A major issue in the competition between KKR and Bain Capital was their different strategies for dealing with Fuji Soft. In order to optimize brand value and specialized market position, KKR planned to enhance Fuji Soft’s profitability primarily through operational optimization, technology-driven restructuring, and maintaining its standalone operations. Bain Capital, on the contrary, sought to integrate Fuji Soft within its broader portfolio of IT assets in Japan, aiming to create economies of scale and increase its market power through consolidation.

Furthermore, Fuji Soft’s significant real estate holdings added value to the transaction. This value could be realized through strategic repurpose, leaseback agreements, or asset sales. In their offer, for instance, KKR clearly cited Fuji Soft’s strong asset base as a supporting reason for the transaction. 

Financial Rationale

Financially, Fuji Soft presents clear opportunities for margin improvement and enhanced profitability. With EBITDA margins lastly around 8.7%, trailing behind industry benchmarks, KKR identified substantial upside potential through targeted cost management, operational efficiencies, and leveraging technology to streamline processes. KKR projected achieving margin expansions of 200-300 basis points within a five-year horizon.

Additionally, KKR anticipated substantial revenue growth opportunities through strategic synergies, particularly by using its existing network of companies in Japan and globally. Cross-selling Fuji Soft’s advanced AI and cloud computing services to a broader client base and integrating innovative technological solutions into new industries were key revenue growth drivers that KKR outlined in its strategic plan.
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Finally, the macroeconomic context in which this acquisition is unfolding is positive and notable. Japan saw record-high volumes of PE transactions recently, with these figures reaching approximately $81 billion as of October 2024. This is an important element highlighting the growing global investor appetite for undervalued and significant Japanese companies.

Conclusion

​With the Fuji Soft bidding war between Bain Capital and KKR, many analysts and several brokers have already made their statements on the firm’s market worth and financial condition, which shows potential for improvement. The intense competition between Bain Capital and KKR has been seen as a welcome development by some market analysts because it has sent the stock price of Fuji Soft skyrocketing, making minority investors richer. In the view of independent analyst Travis Lundy, the bidding war has benefited minority shareholders, adding that outside pressure sometimes works in their best interests.
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Briefly, with Fuji Soft's financial efforts lagging some of its peers in the past, the current bidding war reflects the value-upgrade path that the company can achieve. Analysts and brokers are optimistic that with some strategic interventions, which KKR intends to implement, Fuji Soft can improve its financials, moving closer to and even outperforming industry benchmarks in the future.

By Caterina Molinari, Francesco Bianchi, Sava Neskovic, and Thomas Agosti

​SOURCES

• FactSet
• Orbis
• Financial Times
• Business Wire
• WSJ
• MarketScreener
• Bloomberg
• Japan Exchange Group
• Reuters