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After a 600% rally, 'king of deals' prepares for post-smartphone future

Yuji Nakamura and Yuki Furukawa | Bloomberg/ 12 Apr 19 | 09:51 AM

Yoshihisa Kainuma has made a career out of being in the right place at the right time.


In 2015, the head of Japan’s Minebea Mitsumi Inc. was on a bullet train heading to a city northwest of Tokyo when he realized the chief of a potential acquisition target was onboard. He texted over his seat number and, during a one-hour ride, convinced his counterpart to sell his $500 million company.

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“We grabbed the 6A and 6B seats and hashed it out on our way to Karuizawa," Kainuma said during an interview at the company’s Tokyo headquarters. Three months later, he closed the purchase of Nintendo Co. supplier Mitsumi Electric Co., leading to a surge in profits when the Switch console was introduced.


Decades of similarly well-timed deals have kept Minebea riding each big wave in technology -- from hard disks to smartphones and game consoles. The company, dubbed the "King of Deals" in local media, has grown from a small ball-bearing manufacturer on the outskirts of Tokyo to a key player in the tech industry’s global supply chain.


Now Kainuma needs to reinvent his company again. The golden age of smartphones is over and the Switch faces uncertain demand. Kainuma plans to cut more deals to muscle his way into connected cars and homes, what he sees as the next big thing in tech. He’s ready to spend up to 300 billion yen ($2.7 billion) on a single purchase -- six times his largest deal to date.


“We survive by going all-in on the thing that each generation needs," said the 63-year-old, Japan’s answer to a Master of the Universe, with slicked back hair and crisp suit. "M&A is our core strategy for growth because overnight you can grab time, history, technology and people."


Minebea was founded six years after World War II by military engineers returning from Manchuria. They began supplying the burgeoning commercial aircraft industry with ball bearings. In the 1960s and 70s, the company used M&A to expand into everything from motors and chips to audio speakers. (It is still the world-leader in precision ball bearings, a steady money maker that generates cash for acquisitions.)


Kainuma, a Harvard Law School graduate, was working as an M&A lawyer when he married the founder’s granddaughter. Her father, Takami Takahashi, was Minebea’s CEO at the time and encouraged his new son-in-law to quit his law firm. Kainuma resisted at first, but succumbed after a “ferocious love call" from his father-in-law to join him in making acquisitions. He became head of legal affairs at Minebea in 1988, one of its youngest executives.


Takahashi was also a dealmaker -- fearless and at times reckless. He once decided to pursue a company after flying over its factory in a helicopter. But the pair had little time to collaborate; Takahashi died in 1989. Japan’s bubble burst two years later and Minebea’s wildest bets backfired. Kainuma and others spent decades cleaning up the mess. He was rewarded with a promotion to CEO in 2009.


“He was very young when he entered the company, so he kept his nose down and just worked, worked, worked," said Mitsutoshi Koyama, an executive at the Japan-Thailand Business Forum, who has known Kainuma for decades. “Over time, that won the trust of other employees."


Kainuma kicked off a new era of acquisitions right after taking the helm. Itching for growth after the retrenchment, he zig-zagged between Thailand, Germany, Cambodia and the US, buying specialists in sensors, precision motors, satellite materials and metallic 3D printing. He’s worked on a hundred deals in the last 10 years and closed 17 -- more than the prior two decades combined.


The result is that, after Apple’s Jony Ive or Nintendo’s Shigeru Miyamoto imagine the future of tech, Minebea helps make that vision a reality. When you turn on your phone, its liquid crystal displays are illuminated by an ultra-thin light made by the company. Your camera takes photos in focus because of Minebea sensors. And when you share those pictures on Instagram, the company’s motors rotate fans that cool servers managing those images.


“Under his father-in-law, Minebea strayed far from its core business of ball bearings, but Kainuma has kept them closer to home," said SBI Securities Co. senior analyst Yoshiharu Izumi. “He’s learned from their past mistakes."


Minebea’s operating income surged five-fold since 2009, while shares jumped more than 600 percent to their peak last year, four times the broader Japanese stock market. Still, he has to prove he can find new growth as smartphone demand declines and the industry shifts to a new kind of screen that doesn’t need Minebea backlights.


In February, Minebea slashed its operating profit outlook for the latest fiscal year by 12 percent. Shares are down about 30 percent from last year’s record. Its market value is now about $7 billion, tiny beside rivals like Samsung Electronics Co. and Siemens AG. Morgan Stanley analysts including Shoji Sato downgraded shares last month, writing that large profit declines are “unavoidable" and a "tough recovery" will last until at least 2021.


Kainuma laments falling smartphone sales and blames it on high prices and a lack of innovation -- surprisingly stark criticism of his own customers. “They’re not thinking about the person using it,’’ he said of phone manufacturers. “It’s product design failure."


That’s why he’s accelerating Minebea’s push into electric vehicles and connected homes. Kainuma is wary of over-hyping the so-called Internet of Things, but makes his case by pointing out that for decades most people have started their day by having a loud noise jar them awake.


“Why not have the lights gradually grow brighter after 6:50 a.m.? Or wake up to something pleasant on the TV, like the voice of your favorite actor?’’ he said. “Our lives should become richer."


His latest acquisition is a step in that direction. On Wednesday, Minebea closed its purchase of Tokyo-based U-Shin Ltd, which makes vehicles parts like electronic locks, door latches and fuel lid sensors. It’s a no-frills business, but Kainuma sees bigger things once it’s all connected and developers can write software for each component.


Kainuma’s good fortune seems a tad outrageous at times. He bought Minebea’s headquarters building in Tokyo’s Mita neighborhood six years ago. Then last year, the city unveiled the first new train station in four decades for the popular Yamanote line -- a few blocks from his skyscraper.


“People say I’m lucky, but it’s not just luck," he said.

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