Japanese companies are making large, transformational acquisitions into Europe in order to gain a significant competitive advantage locally, according to pan-European corporate finance house DC Advisory Partners (DC).
DC’s analysis reveals that the volume of outbound Japanese transactions has been increasing yearly by 20 per cent and the trend shows no sign of letting up. This year has already been a record year for the value of outbound Japanese M&A and, if current performance continues, the full year figures will see a 200% increase on last year. DC also predicts that these trends will continue into 2012, with many of the deals likely to involve European manufacturing businesses.
DC believes there are three primary drivers behind the likely increase of cross-border Japanese / European M&A.
Firstly, a strong Yen against both the Euro and Sterling has more than doubled Japanese companies’ buying power over the last four years.
Secondly, a need to diversify following the earthquake has forced Japan to look outbound and its high tech companies have faced increased pressure from partners and customers to widen their geographic footprints after this year’s earthquake.
And thirdly, Japanese companies are cash rich having spent 20 years repairing their balance sheets and paying down debts.
As a result, Japanese companies have now emerged as active deal-makers with an appetite for European businesses. To date in 2011 there have been over 20 significant Japanese acquisitions into Europe, typically within the EUR200 million to EUR1 billion range. DC believes that Japanese companies are seeking European ideas and intellectual properties; a disciplined manufacturing environment as well as strong process know-how and brand recognition. In addition, Japanese buyers appear unafraid of approaching targets pre-emptively, and securing an acquisition before it goes to market.
Tosh Kojima (pictured), Managing Director and Head of the Japan & Asia Focus Group at DC Advisory Partners, says: “A very tough European M&A market is starkly contrasted by the recent onslaught of Japanese buyers entering into Europe. Japanese companies recognise that buying European technology and innovation enables them to gain a competitive advantage in the fast growing Asian economies.”
On a broader scale, DC believes that there is a ‘Europe/Asia’ fit across the whole spectrum of the manufacturing industry in terms of technology, capital goods, automotive and basic building materials. It also believes there is compatibility with process and intellectual property rich industries in chemicals and pharmaceuticals as well as high profile European consumer brands in the food & beverage and fashion sectors. Over the past five years, twice the amount of investment went from Asia into Europe through M&A activity than the other way around and Asia remains an under-developed market for M&A.
“Next year will see a very busy Japanese market; the cash-rich sector leaders struggling to find worthwhile, domestic investment projects are starting to go all the way in European auctions. Already we have seen first time buyers from Japan coming back for their second M&A target – it seems to fundamentally change their strategic mind-set.
“What is particularly exciting is that for both the mature Asian economies like Japan and the developing ones like China, M&A is no longer just the tool of a small number of global elites. A broad layer of Japanese companies sitting below the well-known Japanese names have now woken up to embrace outbound global M&A for sound strategic purposes. 2011 has been described in the European M&A trade as the year of the Japanese buyer – this trend is set to continue into 2012.”
DC Advisory Partners advised EQT III on its sale of VTI Technologies, the last large, independent, semiconductor sensor company in Europe, to Japan’s Murata Manufacturing for EUR195 million in October 2011.
