Riverside makes first Asian acquisition

US small cap firm The Riverside Company has made its first deal in Asia with the acquisition of Japanese parking lot operator Shinsouki, for an undisclosed amount.

Shinsouki operates 70 parking lots in Niigata, Japan, under the Friend Park brand. Shinsouki is a local leader in Niigata, Riverside co-chief executive Stuart Kohl told PEO. Riverside was also drawn to the industry’s underlying characteristics, he said.

“Parking businesses turn out to be pretty profitable,” Kohl said. “They’re nice cash-flow generators.”

Riverside backed the management buyout of Shinsouki from its parent company, telecommunications company Yozan. Yozan acquired Shinsouki in 2006 for ¥668 million as a testing ground for a new video surveillance and transmission system.

Last year Riverside opened its first two offices in Asia, in Tokyo and Seoul. The firm chose Japan and South Korea for their large markets and mature infrastructure, Kohl said. Riverside is also interested in Singapore and Australia for the same reasons.

“We liked the fact that these markets are large and well established, that they have good banking systems and that they are stable democracies with rule of law,” Kohl said.

The firm’s investment strategy in Asia is similar to its strategy in Europe and the US, focussing on companies with earnings before interest, taxes, depreciation and amortisation of between $1 million and $15 million. Competition at the smaller end of the middle market is far less intense in Asia, Kohl said, allowing Riverside to find deals that have been overlooked by the likes of The Blackstone Group and The Carlyle Group.

Japan in particular fits this strategy well, he said, because the country has a relatively low volume of private equity activity compared to the size of its economy than do the US or Europe, as well as a relatively high proportion of small companies.

Two countries that Riverside has no intention of looking for deals in, at least for the near future, are India and China, he said. Before investing in those countries, Riverside would have to see more development and reliability in their banking systems, governments and legal systems. China and India also do not often offer foreign investors the opportunity to take control positions in local companies, which is a key characteristic of Riverside’s investment approach.

Riverside currently manages more than $2 billion in assets, and has offices in Amsterdam, Atlanta, Brussels, Budapest, Chicago, Cleveland, Dallas, Los Angeles, Madrid, Munich, New York, Prague, San Francisco, Stockholm and Warsaw in addition to its Asian offices. The firm has been active in the US since 1988, and in Europe since 1997.