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We are pleased to share our CEO, Casey Abel, and his industry insights through this article, which was originally posted on Tech in Asia and is now featured on Zookeep's blog.

• Why are PE firms betting big on HR tech in Japan?

• Why private equity is rushing into Japan’s HR tech

• Private equity bets big on Japan’s HR tech sector

• Japan's HR tech players draw eye of private equity

Startups in the space could be the winners of an increase in M&A activity as an avenue for achieving an exit.

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.

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.

Previously, investment firm EQT also acquired HRBrain, and Bain Capital & GIC snapped up Works Human Intelligence.

From 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.

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.

Despite those numbers,  the HR tech space in Japan is fragmented. Whereas Western markets have comprehensive solutions, Japan has developed a constellation of specialized providers.

The local ecosystem includes:

• Staffing solutions: Zehitomo, Findy, Tymee, Corner, and others. These players focus on cornering resources and monetizing transactions between individuals and companies to accelerate hiring lead times.

• Talent acquisition solutions: ZooKeep (full disclosure, the author is ZooKeep’s CEO and co-founder), MyNavi, HRMos, Herp, SonarATS, and others. These firms focus on process optimization, insights, and data governance of end-to-end hiring operations.

• Talent management solutions: Kaonavi, HRBrain, and Talent Palette (Ppus Alpha Consulting) compete in this space alongside SmartHR. These solutions assist in developing, retaining, and optimizing the workforce.

• Core HR operations solutions: Works Human Intelligence, SmartHR, SAP SuccessFactors, etc. These platforms handle essential tasks like employee personal data, payroll, benefits administration, and compliance management.

The specialized nature of these offerings reflects Japan's traditional approach to HR, but it also reveals a market ripe for consolidation—something PE firms have clearly noticed.

Challenges

Despite the growing interest from PE firms, I see several challenges that both investors and operators will need to work through to truly take advantage of the capital influx.

There is fierce competition among well-funded HR tech players that could lead to a “race to the bottom” for market share, potentially increasing capital requirements and lowering returns. This trend is evident in the talent management segment, where some companies are aggressively dropping their pricing to secure market share.

In addition, many established HR tech providers have traditionally focused on SMEs and mid-market segments. Developing enterprise solutions is a different ball game, and making the shift may put pressure on tech and product teams to deliver enterprise-grade offerings.

Last, the entry of global firms or well-funded startups poses a real threat to incumbents, as incumbents’ existing technology and product strategies may not struggle to compete with AI-driven data platforms.

Change a comin’

Demographic shifts, digitalization, and evolving work cultures are reshaping how companies approach talent management in Japan. I predict we’ll see even more M&A activity and new market entrants, particularly firms offering AI-driven platforms tailored to local needs.

As the market matures, I believe bigger players will also acquire smaller ones to expand their product offerings and streamline operations. Historically confined to the domestic market, HR tech companies are now moving “upmarket” to serve enterprise customers, particularly companies that are themselves acquired by PE. 

Japanese firms are gradually adopting more comprehensive approaches to talent management as well and are moving away from siloed systems. This shift creates opportunities for consolidated platforms but also demands a deep understanding of the nuances of local business practices.

While influenced by global trends, Japan will inevitably adapt HR tech to its unique market dynamics, which could spur a wave of localized innovation.

One thing is clear: change is coming. Those of us working in this space need to stay agile, understanding both the opportunities and the very real challenges ahead.

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Casey Abel is a serial entrepreneur with over 15 years of experience in industrial, energy, high tech, and private equity talent markets in Japan and the broader APAC region. He is also an angel investor focusing primarily on early-stage B2B startups and is the co-founder and CEO of Zookeep.