Japan: The Unexpected Treasure Trove for Value Investors

During their latest episode of the VALUE: After Hours Podcast, Taylor, Carlisle, and Rasmussen discussed Japan: The Unexpected Treasure Trove for Value Investors. Here’s an excerpt from the episode:

Dan: And so, I’d say like, “Well, where can you buy small companies that are cash flow generative at low prices today?” Like, certainly Japan. Japan, everything is cheap in Japan. Now, everything’s public in Japan too. So, most of the bailouts there are take privates. But generally, yeah, you can get great bargains there. I think Europe is still decently cheaper than the US. There’s less capital chasing deals there.

And then I’d say probably within the US, there are sectors that are left for dead. Private equity as an asset class, you see the LP community react as a herd to certain things. And so, there are a bunch of take privates that went bust in 2008. So, then a lot of LPs said, “Please don’t do take privates.” And so, you saw sort of a move away from take privates lasted a few years. And then every private equity firm and their mother got really into energy in 2012 and 2013, and then got totally burned in 2014 and 2015. And then all the LPs said, “Never do energy again.” And so, I would suspect there’s a lot of interesting energy private equity deals out there. I think it’s just a matter of where the value opportunities are, and I think these days it’s anywhere X US tech and US growth where multiples are really crazy. But the minute you get out of that, there’s a huge drop off to everything else.

Jake: Do you feel like that cyclicality though almost makes it not a good candidate for PE, because inherently, you’re going to want to lever it up, which means you need consistent cash flows to sort of make the math work without crashing the whole thing?

Dan: Yeah, I think you have to lever it reasonably.

Jake: [laughs]

Dan: I think, honestly, you just have to get lucky on the sector time.

Jake: You’re not going to get rich levering reasonably.

Dan: Yeah.

[laughter]

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