BDA Senior Managing Director Charles Maynard quoted in “The China Post”
January 16, 2012
Strong yen leads to Japanese spending spree
By Sebastien Berger, AP TOKYO — Japan Inc. is on an acquisitions march across Asia and around the world, new figures show, as firms armed with ever more valuable yen take strategic advantage of the currency’s post-war highs.
Western economies have been left in turmoil by the global financial crisis and eurozone sovereign debt woes.
And in recent years Japan’s economy has been eclipsed by that of China, which has overtaken its neighbor to take second place in global GDP rankings on the back of rampant growth that has underpinned much of the global economy.
But last year Japanese firms made 198 corporate purchases across the rest of Asia, mergers and acquisitions researchers Recof Data found, an all-time high and well above the previous record of 153 in 2005.
Worldwide the number of deals reached 455, only just short of the record of 463 in 1990, the peak of Japan’s last global spending spree, when it bought up iconic firms and properties, especially in the United States
By value, the 2011 total came to 6.3 trillion yen (US$81 billion), up 67 percent on the previous year and the third-highest figure since the Recof survey started in 1985.
With their home market ageing rapidly and expected to decline in the future, Japanese firms face deep-rooted challenges and have little choice but to look abroad for growth, both in markets and production, analysts say.
Prime Minister Yoshihiko Noda has encouraged the trend.
“We will take advantage of the merits of the appreciating yen to support Japanese companies in purchasing foreign companies and acquiring resource interests,” he said in September.
Takeda Pharmaceutical’s US$14 billion takeover of Swiss drug giant Nycomed was Japan’s biggest deal in 2011, and beverage group Kirin Holdings bought most of Brazilian beer and soft drink maker Schincariol for US$2.6 billion.
In natural resources, Mitsubishi spent more than US$5 billion on buying a quarter of mining giant Anglo-American’s Chilean copper unit, and trading group Itochu took a US$1 billion stake in U.S. oil and gas firm Samson Investment.
Charles Maynard, co-founder of mergers and acquisitions specialists Business Development Asia, told AFP: “M&A is now seen as (almost) a corporate tool just like any other, 15 years ago it still had associations with gangsterism and God knows what.
“Corporate Japan is becoming more confident about itself and that it can manage foreign acquisitions and more particularly foreign management teams, workforces and cultures.
“This is coupled with the dire realization that they don’t have any other realistic alternatives if they are going to grow internationally in many sectors.”
The strong yen is catalyzing the acquisition boom, say specialists.
After Japan’s so-called “lost decade” of low growth in the 1990s, its adoption of near-zero interest rates saw the yen become a relatively weak currency in the 2000s, with the development of a “carry trade.”
Investors would borrow yen to take advantage of the low costs of doing so, and sell them for other currencies where they could earn higher interest rates, pushing the unit’s value down further.
But the 2008 global financial crisis saw other major economies also drop interest rates to minuscule levels – a 300-year-low in Britain’s case – and the incentive disappeared.
The yen has since acquired a new and unusual status as a safe haven, reinforced by the eurozone debt crisis raising investor concerns about the single currency.
The Japanese unit rose even further after the earthquake and tsunami disaster of March 2011, on expectations assets held abroad would be repatriated to help pay for the reconstruction.
The yen has since set a series of post-World War II highs against the U.S. dollar, remaining close to those peaks, and has also reached an 11-year mark against the euro.
That means Japan’s exporters are struggling to sell products that have become ever more expensive to their overseas buyers, but it also means foreign acquisitions are cheaper in yen terms than they have been for a lifetime.
The buying spree has echoes of the late 1980s boom years, when Japanese firms gathered up familiar assets ranging from the Rockefeller Centre and other prime New York properties to Universal Studios and Columbia Records.
Many of the acquisitions ended badly and Japan came to be seen as a financial predator, a nation to be feared for its incomprehensibility and vast wealth rather than as a partner.
But times have changed, said Kenji Madokoro, a senior consultant at Daiwa Institute of Research.
“In the late 1980s before the bubble economy burst, Japanese firms rushed overseas and bought out properties aggressively, which drew sharp criticism abroad,” he said.
“Japanese companies have learnt the lesson from the past. Now, they are going abroad in a more practical manner. Japanese companies are seeking actual returns or visible profits.”