TT-579 -- Local Foreign Entrepreneurs Earn M&A Windfalls, e-biz news from Japan

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A weekly roundup of news & information from Terrie Lloyd.

General Edition Sunday, August 29, 2010 Issue No. 579


- What's New
- News
- Candidate Roundup/Vacancies
- Upcoming Events
- Corrections/Feedback
- News Credits

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It's been a busy week for foreign company owners selling
their businesses. While your average Japanese CEO might
want to turn his company into a lifetime affair, there is
plenty of opportunity in M&A-hungry Japan for enterprising
foreign entrepreneurs to sell locally.

First up, on August 20th, was the announcement that private
equity firm Appreciate, led by Hiroyuki Kurihara, bought the
H&R Consultants and ReloJapan businesses off Oak
Lawn Marketing for an undisclosed sum. Appreciate has
purchased 100% of the operations, and this transaction ends
an 18-year association between H&R and its founders Harry
Hill and Robert Roche. The businesses will still be run by
the very capable Steve Burson, however, and will continue
providing the same high-grade real estate and relocation
services they have done over the last two decades.

We asked Harry why he sold the firm. He responded that
since NTT DoCoMo bought out a majority stake in Oak Lawn
Marketing, one of Japan's largest direct marketing and TV
shopping companies, the compliance environment that came
with DoCoMo, as a public company, has meant that keeping
H&R as a group business has become increasingly expensive
and time-consuming. This is of course understandable, and
we assume represents the natural evolution from small to
big, an evolution which only gets interrupted if the owner
decides to jump out altogether and retire to a deserted
island some where...!

The H&R story is truly one of a bootstrapped start-up, and
should be an inspiration to other young entrepreneurs
thinking about starting a company in Japan. We asked Harry
Hill to give us the start-up story in a nutshell. He

"H&R Consultants was founded in January of 1991. In
December of 1990, Robert Roche and I met at the inaugural
meeting of the American Business Community of Nagoya
(ABCN), which became the Chubu Chapter of the ACCJ 10
years ago. Robert was one of the organizing members. At the
time he had a company called Robert Business Consulting
(RBC) and I had a company called Hilco International. We
had both just hung a shingle to do business and were pretty
much ready, willing and desperate to create business."

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"This was the height of the US Japan Trade Friction years
and there was tremendous pressure on Japan and Japanese
companies to buy US [products and services]. This created a
big rush in joint venture projects between the major
aerospace companies, with Boeing, Raytheon, Pratt and
Whitney, General Dynamics, Lockheed Martin, etc... all
announcing joint development deals that required US
engineers and their families to relocate in Nagoya. The
first meeting of the ABCN essentially was Robert and
myself, representing local, young and hungry entrepreneurs,
hosting a forum for executives from the aerospace industry."

"At the time, the representatives were estimating an influx
of 200 families within an 18 month period. Robert and I
looked at each other and realized we could either hate each
other or become partners. We chose the latter and H&R
Consultants was born. While H&R was never Robert's nor
my primary business, during the first 5-6 years of its
existence it provided both of us with steady supplementary
income that was essential to survive. Robert and I were
very involved in the operations, sales, and day-to-day
business for the first 6 years, but over time an incredible
group of dedicated, hard working and motivated individuals
from Scott Reid, current managing director for brands at
OLM, to Steve Burson, have taken over H&R."

"Over the years, in addition to housing and relocation, H&R
was involved in marketing of international telephone
services and satellite television sales to expats. As well, we
invested in a 2X4 house builder and import construction
materials company...! While humility is one of Robert's and
my more under-stated attributes, the hands-on experience we
gained in the early years by being on 24-hour call taught
us humility and gratitude to all the companies who gave us
a chance at the beginning of our careers. We are indebted
to the ABCN (now the ACCJ Chubu chapter) members who gave
us a chance and this has inspired us to want to mentor and
provide opportunity to this generation of entrepreneurs
coming of age in Japan. Certainly here in Nagoya, I believe
that both OLM and H&R has been open to giving a foreign
entrepreneur a shot."

While the price paid by Appreciate for H&R is not public,
Harry did say:
"The price is not public, but Robert and I founded H&R as
a Yugen Kaisha. H&R pretty much supplemented our incomes
at a nice annual salary per year until 1999 when we sold
H&R to OLM for JPY120m. OLM has steadily received dividends
and sold H&R for a healthy capital gain, so over the years
H&R has certainly generated several hundred million yen off
of an initial investment of JPY3m."


The next deal is that of Wall Street Associates, owned and
run by Nick Johnston. Nick founded WSA in 2000, and
although in a mature industry without the advantage of a
dotcom model, he has been able to build up his business
over the last 10 years to an impressive level. The main
tools he has had at his disposal are: focusing on growth
segments of the market, leveraging with mass (recruiters
and clients), running the operation at a very personal
level and staying part of the team, bringing his core
management team along for the ride (stock options), and of
course personal leadership qualities.

This mix has served Nick well. The buyer is an online and
Japan-specialist recruitment company called En-Japan, which
is actually the second largest online recruiter in Japan
after Recruit. They paid the well-priced amount of JPY1.7bn
for WSA, making it, as far as we know, the biggest earn-out
amongst the 3 foreign recruiting firms to have been sold so
far in the last 5 years or so.

When we first saw the earn-out amount, we were surprised,
because the En-Japan press release that came out on Friday
said that sales for the last financial year were JPY1.859bn
and more importantly, Ordinary Income was JPY296m. If
correct, that means En-Japan paid 5.7 times last year's
earning for the company. In the current economic
environment, this is a fairly high multiple, so we
contacted Nick to confirm why this price was paid. He
responded that apart from the people and systems, the
business itself is on track for a strong recovery this
year, and that sales are running 25% ahead of last year. So
clearly En-Japan was pricing this performance into their
purchase price.

Why would En-Japan, a Japanese online recruiter with a
remarkably small number of bilingual candidates in their
database, be interested in a foreign-company specialist
like WSA? It seems that for much the same reason as Recruit
was interested in another recruiter, CDS, several years
ago -- to bring more aggressive western-style recruiting
skills into the Japanese operation, and perhaps more
importantly, to take the business abroad. It is no secret
that Japanese firms have given up on their domestic markets
for expansion, and that this philosophy has really hit home
over the last 12 months. Therefore, with WSA, En-Japan gets
a foreign markets-capable platform to do what Recruit has
gone on to do with CDS.

Anyway, we want to congratulate the latest group of foreign
businesspeople for showing that although tough, the
Japanese market for venture companies can also be very
rewarding. Well done, Robert, Harry, Steve, and Nick.


Lastly, next week's prize in the Metropolis Members Club is
one night's accommodation in Okinawa, courtesy of Okinawa
Marriott Resort & Spa. All you need to do to enter is sign
up for the MMC newsletter. It couldn't be easier.

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+++ NEWS

- Job creation fund to double in size
- Vaccine makers see demand evaporate
- 70% prefer Kan over Ozawa
- Tourism Agency to ask for budget increase
- Google ousts Microsoft as Japan's top brand

-> Job creation fund to double in size

Job training of care givers, subsidies for companies hiring
long-term unemployed youth, and subsidies for new graduates
are all part of the job creation fund that the government
has spent JPY150bn so far this year on. Now the DPJ plans
to extend the program for another year with the same size
budget, with the goal of creating an additional 60,000 jobs
-- mainly in health care and agriculture. (Source: TT
commentary from, Aug 28, 2010)

-> Vaccine makers see demand evaporate

Thanks to a Health Ministry study last year, the government
has made the decision that it only needs half the inventory
of flu vaccine it originally wanted to ward against an H1N1
style epidemic this coming winter. The study concluded that
just one shot of the vaccines made by GSK and Novartis is
enough to create resistance to the flu. Previously a course
of two shots was recommended. Experts say the decision has
chopped the vaccine market size by a massive JPY40bn.
Particularly upsetting for Novartis is the fact that the
company has not been named as one of the favored few to
mass produce the vaccines here in Japan from now on.
(Source: TT comment from, Aug 26, 2010)

-> 70% prefer Kan over Ozawa

Although it's not up to the public, a Kyodo News poll of
1,450 voters has found that 69.9% prefer Naoto Kan to
Ichiro Ozawa, in the upcoming DPJ party leadership contest.
Rumors are that Ozawa is making his run because it offers
an opportunity for him as PM to avoid court charges of
political funds irregularities. Although Kan is more
popular, Ozawa is the driving force behind the DPJ and
many of the newly elected MPs owe their success to him and
his election strategies. If Ozawa is successful in ousting
Kan, he will be the DPJ's third leader in a year, and
Japan's third PM in a year as well. (Source: TT commentary
from, Aug 28, 2010)

-> Tourism Agency to ask for budget increase

Sensing it is on a roll, with massive increases of tourists
recently, the Japan Tourism Agency will apparently request
a 3% increase in budget for the remainder of fiscal 2010,
and more for FY2011. The Agency says that it wants to hit
15m tourists visiting Japan by 2013 and will need JPY13.1bn
next year to promote Japan as a travel destination. The
Agency plans in particular to target Saudi Arabia, the UAE,
Spain, and Italy for advertisements highlighting Japan.
(Source: TT commentary from, Aug 28, 2010)

-> Google ousts Microsoft as Japan's top brand

A Nikkei survey of 33,033 shoppers and 14,184 executives
has found that Google now has the most respected and
recognized brand in Japan. In being so ranked, Google has
surpassed last year's leader, Microsoft. Sony came in
third, followed by Yahoo, then other famous indigenous
brands in the top 20, such as Canon, Panasonic, Casio, and
Sharp. (Source: TT commentary from, Aug 27, 2010)

NOTE: Broken links
Many online news sources remove their articles after just a
few days of posting them, thus breaking our links -- we
apologize for the inconvenience.




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