Interview with Okitsumo Incorporated
Manufacturing company | Japan

Why Japan's top global company in a niche industry chose a local company in Thailand for its first M&A

Okitsumo Incorporated

M&A Case Interview

Company Name: Okitsumo Incorporated (Mie Prefecture)
Busines: Manufacturer and sale of heat-resistant paints, fluoropolymer paints, and functional coating agents
Net sales: Approx. 3.57 billion yen (non-consolidated, FY2021)
Number of employees: 128 (non-consolidated, as of December 31, 2021)
Company Name: Bu Chemical Industry Co.,Ltd. (Thailand)
Busines: Manufacturer of industrial paints
Net sales: Approx. 430 million yen (FY2021)
Number of employees: 53 (as of December 31, 2021)

* Information at the time of execution of M&A

Okitsumo Corporation (Nabari City, Mie Prefecture) is a leader in heat-resistant paints sector with a domestic market share of over 50%. It has been actively expanding overseas and promoting local production since the 1990s and is now a global company with representative offices in six countries: the United States, Brazil, India, Spain, China, and Thailand. While the company has a wealth of overseas networks and knowledge, this is the first time it has acquired a local company in Thailand through M&A.

As a result of competing in a niche area, Okitsumo achieved more than 50% of the domestic market share in heat-resistant paints.

Okitsumo manufactures and sells heat-resistant paints. Although there are many types of paints depending on the application, the company specializes in the development of paints with heat-related functions such as heat resistance, heat dissipation, and environmental friendliness. In 1957, Okitsumo was the first company in Japan to successfully mass-produce heat-resistant paints based on silicone resin. The paint, named "Okitsumo," has been used in a wide range of products from everyday items such as heating equipment and kitchen utensils, automobile mufflers, and rockets. Since then, it has been meeting customers' heat-resistant needs ever since. The company now boasts a domestic market share of over 50% in heat-resistant paints with annual sales of 7.29 billion yen (consolidated, FY2021), 315 employees (including 4 group companies), and 6 overseas offices. They can deserve to be called a Japanese global leader in a niche industry.

Okitsumo's headquarters
Okitsumo's headquarters is in Nabari City, Mie Prefecture. The employees can get from Nagoya City to their HQ in 90 minutes now, but they used to have to send a telegram to notify HQ when they received an order.

Formerly, Okitsumo was established as Daiaseiko in 1945, it was renamed Mie Yushi Kako in 1947, and changed to its current name in 1987. The company is currently headed by Mr. Shigeharu Yamanaka who is a grandson of the founder. President Yamanaka describes Okitsumo's strengths as follows.
"Major companies dominate the market for common paints, such as paints for car bodies and building exteriors. Especially in the 1980s, when I first joined the company, it was common to purchase commercial paints for manufacturers. That's when we decided to jointly develop products with our customers. The low volume and variety of production made it difficult for large companies to copy us. We were once described as like a tavern without a menu."
Currently, about 30% of the group's employees are engaged in technological development. By sharing new technologies, ideas, developed information with overseas bases, he company has built a global technology system that will lead to further new product development.
Incidentally, the company name "Okitsumo" is derived from "沖津藻 (Okitsumo)," a pithet for Nabari written in the Manyoshu (the oldest anthology of poetry in Japan, edited in the eighth century). The name also expresses the wish to be a company that, while pursuing cutting-edge technology, never forgets the simple and rich spirit of the Manyo people, who loved the beauty of nature.

New business development stalled amid Covid-19 pandemic. A new pillar of growth is needed for the decarbonization era.

It was in 1994 that Okitsumo established a sales office in the U.S. as its first expansion. Around this time, Japanese companies began to expand overseas and relocate their production bases overseas in earnest, and two years later, in 1996, Okitsumo followed this trend by establishing a production base in Thailand. President Yamanaka, who was 30 years old at the time and working in the sales department, took the lead at that project. When I was transferred to Thailand, I had only been with the company for a few years and was inexperienced regarding plant, technology and management yet.
Then the currency crisis hit, and we could no longer expect to receive orders from Japanese companies in Thailand, which we had counted on before operations began. However, we still incurred the cost of building the factory. It was very difficult to make the weekly payments.

Okitsumo's local base in Thailand
In addition to coating and processing of heat-resistant paints and lubricant paints, "development of paints" and "tuning of paints" to meet customer needs are also performed.

After more than 25 years of overcoming difficulties, Okitsumo has now taken over a local company through M&A, even though the Thai base is currently operating smoothly. Behind this decision was the Covid-19 pandemic of the past few years.
"The Thai base is steadily generating profits, but its main product is paint for motorcycle mufflers, which accounts for about 70% of its sales. Most of the customers are Japanese motorcycle manufacturers. Although it is a growth industry at the moment, it will reach a plateau at some point, considering the trend toward decarbonization and other factors. In anticipation of this, we had been working to create new businesses, but the Covid-19 pandemic put a stop to all of them. It was at that time that we came to know about Bu Chemical Industry."
Bu Chemical Industry is a Thai company that manufactures and sells paints for gas cylinders and was looking for a transferee due to the absence of a successor. Due to its niche products, the company's profit margin is as high as 10% and its performance is good. Above all, the fact that the company has local companies as customers was attractive.
"Although we have built up a good relationship with Japanese companies since our establishment in Japan, without a track record of dealing with local companies in Thailand, we would have to compete on price. Price competition is not our core value, as our strength lies in developing products that meet our customers' needs. By acquiring Bu Chemical Industry, we thought we could expand our business domain and gain new local customers. Thus, Okitsumo and Bu Chemical Industry formed a capital and business alliance.

By integrating our technology and know-how, both companies can grow

This is the first successful M&A deal for Okitsumo, but the company has twice considered M&A deals with overseas companies and failed to close the deal. In both cases, the negotiations were conducted by themselves, but "a number of unexpected problems came up," said President Yamanaka with a wry smile.
"For example, this happened: there was a company that we were doing due-diligence on, and during the due-diligence, a lot of problems were discovered, such as disputes over unpaid salaries, the renewal of a land contract, and so on.
In that negotiation, because the target company was loss-making, even we were not able to put a price. Nevertheless, we continued to negotiate, but we couldn't come to terms at all."
"In this respect, the transaction went very well. The company's performance was good, in addition, it was also easy to determine the acquisition because the price was proposed after a thorough corporate evaluation by Nihon M&A Center.
During the negotiation, we couldn't vist to Thailand to talk with the founder due to the Covid-19, but Nihon M&A Center helped us to communicate with the seller, so we were able to proceed with our discussions without any stress.

The signing ceremony
The signing ceremony was held in Thailand. Mr. Sittiporn Rearmtrakul, a director of Bu Chemical Industry, is second from the left in the front row. Mr. Jermsak Oungsuthipornchai, a director of Bu Chemical Industry, is in the middle of the front row.

A few months after signing the contract, Okitsumo is currently in the middle of taking over from the previous owner, and when we asked about the situation, President Yamanaka told us about the difficulties unique to a manufacturing company.
"We had expected this, but all the recipes for paint formulations are only in the minds of the previous owners. Although it may be due to preserving confidentiality, they are not stored as data. Therefore, now we are working on 'visualization' to record the recipes while interviewing the previous owner."
Okitsumo intends to continue to aggressively utilize M&A to expand its business domain, particularly in the ASEAN region. In this sense, President Yamanaka says that this M&A transaction has become a "touchstone".
"What if fuel-electric vehicles were to disappear, one-third of our business would disappear, and that is not so far away in the future. We believe that by combining our technology and know-how with the company acquired through M&A, we believe we will be able to develop new businesses and customers, and both companies will be able to expand each business."

Nihon M&A Center Representative’s Comment

"Despite there were some difficulties in moving the project forward under the Covid-19 situation and other obstacles unique to cross-border transactions, we were able to move forward amicably thanks to the speedy decision-making process and the sincere attitude of everyone at Okitsumo towards the transferee company.
We hear that Okitsumo will continue to aggressively expand overseas, and we sincerely hope that this transaction will contribute to the development of Okitsumo Corporation."

※Title at the time of interview
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