Japanese companies look overseas

22 October 2012

TOKYO: Companies from Japan have ramped up their expenditure on foreign acquisitions in 2012, but must overcome a widespread legacy of failure in this area.

Data from Bloomberg, the information provider, revealed that Japanese corporations have invested  $96bn in overseas takeovers during 2012 thus far, compared with $87bn across 2011 as a whole.

"There is an overwhelming incentive for Japanese companies to go abroad," said Frederic Neumann, co-head of Asian Economic Research at HSBC.

Domestically, an ageing population and long-term economic malaise offer two such reasons. The strength of the yen has also delivered affordable valuations when buying foreign competitors.

However, Bloomberg's figures showed that Japanese firms participating in the ten biggest overseas acquisitions between 2000 and 2011 have logged a collective $330bn contraction in their market value.

"The track record is terrible," Stephen Givens, a lawyer specialising in mergers and acquisitions, said.

The advertising industry recently witnessed this new expansionist trend first-hand when Dentsu, the holding group, purchased Aegis, its UK-based counterpart, for $4.5bn, as announced in July.

Other deals have included Itochu snapping up Dole Food's worldwide packaged food and Asian fresh produce arm for $1.7bn, while Daikin Industries paid $3.7bn for appliances group Goodman Global.

Perhaps the most significant example, however, is the $20.1bn bid that Softbank, the mobile telecoms group, tabled last week to take a 70% stake in Sprint, its US counterpart.

"It's not an easy path to go," said Masayoshi Son, Softbank's president. "But without taking on a challenge, we may end up facing bigger risks."

Neumann predicted the financial services industry could soon experience similar activity, as Japan's banks are stronger than many Western rivals left reeling by the financial crisis.

"These banks are looking to expand. They want to grow, but they don't really have the opportunity to do that domestically," said Neumann.

Data sourced from Bloomberg; additional content by Warc staff