July 30, 2015    3 minute read

Japan’s Alarming Overseas M&A

   July 30, 2015    3 minute read

Japan’s Alarming Overseas M&A

Despite the falling yen, Japan is on track to achieve what is its best M&A year to date. The recent buyout of the Financial Times by the Japanese media group Nikkei places Japan as the highest acquiring nation in Asia with an estimate of $53.5 billion worth of deals compared to China’s $50 billion.

Chinese and Japanese companies' foreign M&A spend

How? Some may ask

The depreciating currency should, in theory, make foreign investments more expensive as imports become less profitable. However Japans’ monetary stimulus plan, which includes near-zero interest rates and its record high stock markets mean cheap credit is available to spend. At the end of last year, there was $2 trillion in cash available from Japanese companies.

Due to the stagnating economy and aging workforce of Japan there is little opportunity for businesses to expand and sell domestically. This means the cheap credit is more often than not invested abroad, which is confirmed by the 46% premium they are willing to pay for overseas assets, more than double the average 22%. This can be done through buying back shares and hiking dividends, investing in capital or M&A. Japan’s new governance code that was introduced this summer places great emphasis on profitability and efficiency and M&A satisfy these. The new code coupled with executives’ desire to show that they’re using the cash they have and the greater initiative top managements have taken in executing deals all lead to faster transactions. To give insight, Cannon’s CEO and Axis’ head met last summer, negotiations happened in autumn and the deal was approved by February.

Japan might have a stagnating economy, but it is still ahead of the West. It is estimated the life expectancy at birth in Japan has grown by 5.9 years since 1989, 4.3 years above their British counterparts. The main reason for this doesn’t have to be their diet as commonly confused but with the improvements in their health care system. They also had an unemployment rate almost half the United Kingdom’s, at 3.6% compared to our 6.2%. Most importantly they were trading more profitably too. According to CIA’s figures they ended the year with a current account surplus of $45billion dollars while the UK incurred a $162 billion current account deficit.

Should we be worried?

It’s not difficult to see the common theme portrayed in acquisitions between the West and Japan, more often than not it’s Japanese firms buying European and American businesses out. They already monopolise the world’s supply of carbon fibre, a very strong and light polymer used in high-end vehicles. They dominate the market for silicon chips, which are used in almost every computer chip to create integrated circuits. They also now hold the record for having the rail station with the most users in the world and the 4th busiest airport.

Whether we like it or not, Japans’ influence in the corporate world is growing exponential and cannot be overlooked. Their plan to continue to target industries outside their hometown means that we will continue to slowly lose a small part of our culture and dominance with every takeover or purchase.

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