Business is booming.

GIC/Works Human: Japan’s reliance on floppy disks creates a need for cloud cover

Floppy disks and fax machines are still very much in use in Japan. Old-fashioned business habits have damped demand for enterprise software and cloud computing. Private equity interest in the sector is a sign that the pace of digital transformation could be set to pick up.

Singapore sovereign wealth fund GIC has invested in Works Human Intelligence. It will jointly own the Japanese human resources software provider with private equity firm Bain Capital. The deal values Works Human at Y350bn ($2.6bn). That is more than triple the Y100bn paid by Bain for the business in 2019. GIC takes over about half of Works Human’s shares. The rest are held by company executives and Bain.

The Works Human Intelligence transaction is the largest private equity acquisition of a software company in Japan. Until now, corporate Japan’s slow digital uptake militated against large deals in the sector. The move by GIC, which has mostly focused on real estate deals in Japan, suggests the enterprise cloud sector’s growth prospects look relatively promising.

The global cloud market is dominated by Amazon. Its cloud business has slowed but still grew by a fifth in the fourth quarter. Though its operating income for the quarter dropped marginally on the previous year, it was almost double the profit number for the full company. Its strong customer pipeline suggests further growth in the coming months.

In Japan spending on public cloud services accounted for just 4 per cent of total IT expenses in 2021, less than half that of North America and Europe. In China, the leading cloud provider Alibaba is already near market saturation domestically.

Shares of Fujitsu, one of Japan’s largest enterprise cloud service providers, are up more than a tenth in the past six month. But they still trade at a conservative 13 times forward earnings, a steep discount to global peers. That leaves ample room for growth in Japan.

Lex recommends the FT’s Due Diligence newsletter, a curated briefing on the world of mergers and acquisitions. Click here to sign up.

Source link

Comments are closed, but trackbacks and pingbacks are open.