Bain Capital’s plans to take Japan’s Kioxia public have been derailed after investors pressured the private equity firm to significantly lower its valuation for the memory chipmaker. Initially seeking a valuation of 1.5 trillion yen ($10 billion) for the anticipated IPO, Bain found that global investors were only willing to offer around 800 billion yen, prompting the U.S. buyout firm to abandon its October listing plans.
Kioxia, formerly known as Toshiba Memory before being acquired by Bain-led consortium in 2018 for 2 trillion yen ($13.4 billion), faces challenges as it seeks to exit a six-year investment. The valuation discrepancy highlights investor concerns over the current state of the memory chip market, especially given recent trends in demand and competition.
A fund manager from an Asian hedge fund, who met with Kioxia, stated, “An IPO this year looks difficult given NAND market conditions, although it may be possible by the end of the financial year.” The NAND flash memory market, which Kioxia specializes in, has been experiencing pressures due to weak demand for smartphones and PCs, coupled with stiff competition from South Korean and U.S. rivals.
Despite some recovery in NAND prices this year—attributed to the rise of artificial intelligence—analysts suggest that price increases have stagnated. Akira Minamikawa, a senior analyst at Omdia, indicated that the adoption of AI in consumer technology might stimulate replacement demand starting next year.
Kioxia’s tumultuous journey includes its separation from the troubled Toshiba and halted merger talks with partner Western Digital, largely due to opposition from investor SK Hynix.
One portfolio manager from a Western fund expressed reluctance to invest, saying, “I don’t want to buy shares when the NAND market is peaking out in the short term.”
The Japanese stock market has experienced volatility following a surprise rate hike and a change in leadership, yet the benchmark index has risen by 18% year-to-date. Kioxia’s IPO is being closely monitored as a barometer for private equity firms in Japan, where many companies are divesting non-core assets or going private.
Experts caution that private equity firms often shy away from semiconductor investments due to high capital requirements and the challenging timing of exits, according to Damian Thong, head of Japan research at Macquarie Capital Securities.
In an effort to bolster its semiconductor sector, the Japanese government has promised up to 242.9 billion yen in subsidies to Kioxia and Western Digital for production expansion in Mie and Iwate prefectures. Kioxia’s significance as a memory chip producer, particularly for AI applications, remains crucial for the country’s industry revival.
Thong further noted, “It would be reasonable to have Kioxia IPO at a lower valuation first, and let the true value be discovered as it rerates in the market.”
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