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A long-term partner, Carlyle has helped Kito expand internationally and implement operational improvements, positioning the company for continued growth in the years to come.
About Kito and the Transaction
In August 2003, Carlyle acquired 91% of the voting shares of the Kito Corporation through a tender offer. Founded in 1932, Kito is headquartered in Japan and manufactures material handling equipment, including overhead cranes and manual and electric chain hoist. It also offers repair parts and maintenance services. Kito has 1,881 employees worldwide and subsidiaries and joint ventures in Canada, China, Germany, Korea, Thailand, the Philippines and the United States.
Subsequent to Carlyle’s initial investment, Carlyle conducted a share exchange to acquire a greater interest in Kito. Carlyle ultimately owned 98% of the voting shares, with Kito management retaining the remainder. Following Kito’s initial public offering in August 2007 and two other transactions in which Carlyle sold shares, Carlyle owns a 17.5% interest in Kito as of March 2010.
Key Value Creation Metrics
- Expanded internationally, particularly in China, Germany and the United States, with international markets accounting for 62% of total sales in fiscal year 2009 compared to 11% in fiscal year 2002.
- Increased employment by 26% between 2003 and 2010, from 1,495 to 1,881.
- In 2009 and 2010, achieved the #1 and #2 positions in the Chinese and U.S. hoist markets, respectively, and captured the largest share of the Japanese hoist market as of August 2010.
- Executed a successful IPO, enabling more flexibility in managing its capital.
Focusing on International Growth
Challenged by Japan’s economic depression that began in the early 1990s, Kito sought to shift its core business and expansion activities to overseas markets but lacked the financing to support this strategic change. Carlyle’s Tokyo-based investment team identified the opportunity to grow Kito’s business and began discussions with the company. Ultimately, Mr. Shinjiro Kito, a founding family member and then CEO of Kito, determined that Carlyle’s local presence, deep industrial sector expertise and global network were the right ingredients to forming a successful, long-term partnership that would help the company achieve its growth objectives.
Since Carlyle’s investment, Kito has expanded operations at its subsidiaries in Canada, China, the Philippines, Thailand and the United States. Between 2002 and 2009, revenue attributable to these subsidiaries grew by 2.8 times. The company also established operations in Germany and Korea, opened a new factory in China and increased its ownership in a Chinese joint venture. To support this expansion, Kito increased employment levels at these locations by 39%. As a result, Kito’s total sales from international markets increased from 11% in fiscal year 2002 to 62% in fiscal year 2009. The company’s products are now distributed in more than 50 countries.
Enhancing Operations to Build Value
With Carlyle’s assistance, Kito implemented a series of key strategic reforms to increase value. First, Kito divested its loss-making logistics systems business, which enabled the company to generate free cash flow and focus on its core business. Second, the company engaged operational efficiency consultants to help streamline Kito’s factory operations, resulting in significantly lower production lead times and inventory levels. Third, Kito hired a new management team at its U.S. subsidiary. This move transformed the U.S. operation into one of the company’s largest profit centers, accounting for nearly 50% of EBIT in 2009.
Executing a Successful Initial Public Offering
Despite tumultuous global markets that undermined the manufacturing sector, Kito returned to the public markets through a re-listing on the Tokyo Stock Exchange in August 2007. Carlyle advised Kito during the underwriting process and worked with the company in selecting banking and legal representatives, coordinating the various parties engaged in the process and resolving legal and financial issues that arose during the process. As the global manufacturing sector recovers, we believe Kito is well positioned to continue expanding its operations and diversifying its product offerings.