Japanese firms look overseas

09 February 2012

TOKYO: Brand owners in Japan are taking an increasingly proactive approach to overseas expansion, a trend partly due to negative conditions in their domestic market.

Reuters, the news provider, reported that Japanese firms spent $70bn on buying foreign companies in 2011, a record high. The buys were aided by a strong yen, comparatively large corporate cash reserves and attractive opportunities, especially in crisis-hit Europe.

The amount of deals also rose by over 20% year on year, with major players like Takeda Pharmaceutical Co, Kirin Holdings and Tokio Marine Holdings all spending big to enhance their international reach.

Another motivation for such moves is Japan's contracting population, currently standing at 128m, but set to fall by 30% during the period to 2060.

"Japanese companies' direct overseas investment has not been increasing seriously yet," said Daiju Aoki, an economist at UBS. "But we can expect Japanese companies will become more active in foreign investments, driven by the expectation that the US economy will improve."

One example of this is Recruit Co, the country's biggest recruitment network, which has been trading since 1963 and recently bought Advantage Resourcing Europe for $410m, its third purchase in two years.

"Having had control of a dominant share in Japan, we have to seek the next opportunity somewhere else," Hitoshi Motohara, managing executive officer of Recruit Co, said. "A company based in the US with global presence would be ideal."

Meanwhile, Tomy, the toy manufacturer, completed its first formal acquisition last year, paying $640m for RC2, its American counterpart. Toyo Seikan, a packaging firm, acquired Stolle Machinery for $775m, a strategy it had not previously adopted.

Nisshinbo Holdings, the industrial conglomerate, has similarly taken over TMD Friction Group for $577m,
having not pursued any mergers and acquisitions after 1999.

"We're seeing an increase in the number of Japanese corporations considering M&A overseas, including corporations with almost no past experience of acquisitions," Jeremy White, a lawyer at Allen & Overy in Tokyo, said.

Sumitomo Mitsui Financial, the bank, and Sumitomo Corp, the trading company, are also in the midst of buying an aircraft leasing unit from the Royal Bank of Scotland for $7.3bn, indicative of wider trends.

"Japanese banks have been less affected by the European crisis and are very aggressive in M&A financing," said Yuichiro Wakatsuki, head of M&A business at Bank of America Merrill Lynch in Tokyo.

Data sourced from Reuters; additional content by Warc staff