How the AI boom turned a buyout deal into one of history’s most lucrative

{"text":[[{"start":12.25,"text":"Bain Capital has notched up one of the most lucrative private equity deals on record after the memory chipmaker it bought eight years ago became one of Japan’s most valuable companies following a share price surge of more than 5,000 per cent."}],[{"start":27.5,"text":"Bain stands to pocket profits of more than $15bn on its 2018 buyout of Kioxia — then called Toshiba Memory — according to multiple people familiar with the matter."}],[{"start":40.55,"text":"The deal is set to return close to 20 times Bain’s investment as Kioxia’s value has soared since being listed in 2024, including a windfall of more than $8bn for the US firm’s 12th flagship PE fund."}],[{"start":54.099999999999994,"text":"The memory chipmaker has jumped 700 per cent this year and is now Japan’s most valuable company, worth more than ¥51tn ($318bn) — more than Toyota or SoftBank. Kioxia is also on track to be the best-performing stock on the MSCI World index for two years running. "}],[{"start":75.44999999999999,"text":"Bain Capital has now sold most of its own stake, say people close to the fund, leaving some money on the table. However, the wider Bain-led consortium that includes South Korean chipmaker SK Hynix still owns about 18 per cent, meaning a significant chunk of the profits remains unrealised."}],[{"start":92.79999999999998,"text":"The gross profit on the trade for the consortium could be well over $70bn and rising, according to market calculations."}],[{"start":null,"text":"

"}],[{"start":101.94999999999999,"text":"Bain’s Kioxia trade has already overtaken the $14bn that Blackstone’s funds made on Hilton Hotels and is in the same ballpark as Silver Lake’s 2013 purchase of Dell and 3G’s gains from Burger King. Those deals are routinely cited among the best-performing private equity trades on record."}],[{"start":120.35,"text":"Silver Lake still owns close to 7 per cent of Dell, so its gains will rise or fall with public markets. Silver Lake has made more than 18 times the $1.8bn it invested, helped by Dell’s stock nearly tripling over the past year on AI demand, and the tech giant’s $92bn sale of VMware. That deal generated a near $10bn windfall for the PE firm’s investors."}],[{"start":145.45,"text":"Some investments have delivered even larger returns. Lime Rock Partners made an estimated 79-fold return from selling a fracking business to Occidental Petroleum but involved much smaller initial investments."}],[{"start":null,"text":""}],[{"start":159.25,"text":"Steven Kaplan, an expert on private equity who teaches at the University of Chicago, said that while venture capital relied on occasional blockbuster deals to make up for failures, private equity preferred steadier returns. A return of more than 15 times the investment in such a large deal was extremely rare, he added."}],[{"start":178.95,"text":"The scale of Bain’s returns is both a demonstration of the fund’s success after 20 years in Japan and a potential risk for an industry enjoying a rare wave of political support. Private equity and activist investors have been viewed as ways to shake up sleepy corporate Japan, in turn boosting returns and the stock market and getting the country’s ageing population invested."}],[{"start":201.89999999999998,"text":"Bain insiders are keen to downplay the scale of its gains, amid concern that Prime Minister Sanae Takaichi may be forced to respond to public anger. It could also accelerate a political desire to foster a domestic private equity industry capable of competing at scale for Japan’s most attractive corporate assets. "}],[{"start":221.54999999999998,"text":"Bain led the $18bn buyout of Kioxia in 2018, in Asia’s largest private equity deal at the time. Toshiba, which invented Nand flash memory in the 1980s, was forced to sell its crown jewel following an accounting scandal."}],[{"start":237.64999999999998,"text":"At closing, Toshiba — now owned by Japanese PE firm JIP, which is also reaping large-scale rewards — and another Japanese company held a slim majority of the business. It was carefully constructed to keep the Japanese government happy and beat rival bids by KKR and Western Digital, Broadcom and Taiwan’s Foxconn."}],[{"start":260.5,"text":"“We stretched ourselves to execute this deal,” said Masa Suekane, a Bain deal maker who led the transaction and is on the Kioxia board. “Japanese companies get majority ownership . . . we controlled the governance.”"}],[{"start":273.2,"text":"Bain also protected itself in the deal by bringing in customers like Apple into the consortium. SK Hynix, say people familiar with the matter, accepted lower returns for its equity stake to ensure Kioxia was not bought by a rival. SK Hynix declined to comment."}],[{"start":288.84999999999997,"text":"“It’s the most cyclical and capital-intensive industry so . . . we wanted to protect ourselves on the downside,” said one of the people familiar with Bain. "}],[{"start":null,"text":""}],[{"start":297.04999999999995,"text":"Justifying its concern, Kioxia — which combines the Japanese word for “memory” and the Greek word for “value” — was hit hard by the crash in demand for memory chips after the pandemic."}],[{"start":308.44999999999993,"text":"The first attempts to float the company in 2020 were aborted and efforts to merge Kioxia with rival Western Digital collapsed soon after, with SK Hynix concerned that the new company could challenge its position in the Nand memory market."}],[{"start":322.99999999999994,"text":"As a result, Bain’s buyout of Kioxia was in “deep trouble” even after its IPO, with the valuation well below the buyout price, says one of the people familiar with the matter. Bain was forced to refinance and drum up capital through the sale and leaseback of buildings and extending debt agreements."}],[{"start":340.79999999999995,"text":"Critics of Bain — and private equity in general — say the firm did not do enough to invest in Kioxia. Its Nand market share has dropped from about 19 per cent when Bain took over to 14 per cent, according to TrendForce, a Taiwanese research company, as China’s YMTC has emerged as a fierce competitor."}],[{"start":360.59999999999997,"text":"Rivals Samsung, SK Hynix and Micron elevated themselves in the AI hardware hierarchy by investing aggressively through the downturn to commercialise high-bandwidth memory — ultrafast memory for real-time AI tasks."}],[{"start":374.24999999999994,"text":"By contrast, the Japanese group focused only on Nand memory, which functions more like a filing cabinet, storing long-term data that AI models need for inference. The focus by competitors on high-bandwidth memory has helped stoke undersupply for Nand memory."}],[{"start":391.54999999999995,"text":"Bain insiders reject those claims, citing big spending on fabrication plants during the industry downturn, as it revamped the company’s pay, governance and financial reporting practices. It also gave stock options to about 700 employees."}],[{"start":406.99999999999994,"text":"Although existing management was kept, it brought in former Intel executive Stacy J. Smith as chair, prioritising experience in building commercial capability."}],[{"start":417.3999999999999,"text":"“It would be easy for a private equity company to come in and say ‘well, cut that, maximise cash flow and pay ourselves a big dividend’. Bain does not do that,” Smith said."}],[{"start":427.8499999999999,"text":"Bain’s original thesis for the buyout included that data centres would provide significant growth due to the rise of cloud storage. And, says Suekane, when they promoted the IPO six years later, AI and the rise of inference had become part of the pitch. "}],[{"start":444.5499999999999,"text":"Bain remains adamant that its success with Kioxia stems from the groundwork done over the firm’s two decades in Japan, during which time it has notched up more than 45 deals with no bankruptcies. The firm’s record in the region helped to propel Asia head David Gross to run Bain globally this year."}],[{"start":472.94999999999993,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1781609325_2907.mp3"}