13 June 2013

Japan outbound M&A chugs quietly away

Japanese companies are continuing to actively pursue outbound mergers and acquisitions (M&A) in 2013, but just not at the frantic record-breaking pace of the last two years. Analysts speculate that a weaker yen is unlikely to dampen appetite for overseas deal-making, though it could make it more difficult to sign off on those ever-important transactions. Yuichiro Wakatsuki, head of M&A at Bank of AmericaMerrill Lynch in Tokyo, told the Wall Street Journal that for companies seeking growth outside of Japan, the yen devaluation does not necessarily change their stance on overseas acquisitions.  Hiroshi Watanabe, executive managing director of the Japan Bank for International Cooperation, said in an interview with Bloomberg that these business need to establish or acquire operations in foreign countries with rising populations and incomes – offering larger growth potential.

The plain fact of the matter is that 2011 and 2012 were stellar years, one by value and one by volume, according to Zephyr, the M&A database published by Bureau van Dijk. There were 412 outbound deals worth a total of USD 65,881 million in 2011, representing a 49 per cent hike in volume and 47 per cent improvement by value on 2010. The value of M&A deals in 2012 may have slipped to USD 56,315 million, which was still the second-highest on record, but volume rose a further 11 per cent to 457 deals. Keeping this in mind, is it really likely that Japanese companies can sustain such outbound M&A activity into the rest of 2013 or 2014?

So far this year Japanese outbound M&A value is down 70 per cent from H1 2012 – and yes, there are still a couple of weeks to go until the end of the first half of the calendar year. There was just USD 9,120 million in announced deal value compared to USD 30,323 million in H1 2012, the lowest level recorded by Zephyr since USD 7,132 million in H2 2007. The largest announced deal was the USD 2,583 million acquisition of Dutch asset manager Robeco Group by Orix.  On the flip side, it is worth noting that M&A activity targeting Japan-based companies is also down when compared to H1 2012, at just 1,035 deals worth USD 32,773 million from 1,747 valued at USD 76,987 million. This is the lowest volume result since H1 2007 and the worst half-yearly value recorded by Zephyr since 2004. While Japanese acquirors have sought out deals in countries ranging from Finland and France to Russia and the US this year, the main targets of outbound M&A in terms of volume were companies based in the Far East and Central Asia, with popular destinations including Indonesia, China and Singapore.

This data was put together just before markets across Asia fell amid stimulus concerns, with Japanese stocks entering into bear market territory after a breathtaking bull run which started in November, and the Nikkei morphing from one of the best performing stock markets into one of the most volatile. Meanwhile, the press is reporting that some investors are concerned about the possibility that the weakened yen may now reverse, triggering concerns of a cut in exporters’ profits. How all this background will come to bear on inbound and outbound M&A remains to be seen but keep in mind the first half of 2013 has not yet ended.