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Casey Abel · · 4 min readWhy are private equity firms betting big on HR tech in Japan?
As someone who’s spent over 15 years working in Japan’s human capital and tech sectors, I’ve had a front-row seat to the evolving relationship between private equity (PE) and HR tech in the country.
Right now, PE activity in the overall Japanese economy is soaring. In fact, PE and venture capital-backed investments are up 40.8% year over year in 2024.
Image credit: Timmy Loen
With the evolving market, many HR tech firms have emerged. However, late-stage capital is still limited, and this has led some to go public too soon. This has opened up opportunities for PE firms to acquire undervalued companies and unlock venture-style returns.
Still, investors and operators alike need to navigate risks – like a potential race to the bottom on pricing – if they want to reshape the market.
PE arrives
Japan’s HR tech space has become a target for PE firms in recent years. Carlyle Group’s recent acquisition of Kaonavi for US$325 million, at a staggering 120% premium, is the latest example.
See also: Japanese startups haven’t gone global yet, but the ingredients are there
Previously, investment firm EQT also acquired HRBrain, and Bain Capital & GIC snapped up Works Human Intelligence.
In my view, several factors are driving this interest: Japan’s low interest rates, ongoing market restructuring, and increased focus on governance and compliance. Japanese boardrooms are also paying more attention to talent management, creating opportunities for HR tech solutions.
Image credit: Timmy Loen
However, what’s particularly interesting for me is how Japan’s capital markets have shaped the landscape. Many HR tech companies here go public at valuations that would be considered mid-stage funding rounds in other markets.
This has created challenges and opportunities.
State of the market
Japan’s HR tech sector was valued at approximately US$2 billion in 2024. Forecasts indicate that the overall market is projected to expand to US$3.9 billion by 2033, reflecting a compound annual growth rate of 6.94% from 2025 to 2033, according to IMARC Group.
Not smooth sailing
Change a comin’
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Startups could benefit from the increased M&A activity, but they must navigate industry challenges to exit successfully.
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