Japanese Companies Expanding Overseas
Sometimes folks who analyze the motivations of buyers spend way too much time delving into nuances rather than focusing on the obvious. That is why it is really nice to see when an analyst digs past all the noise to sum up a trend in a way that makes sense.
I saw this recently in an article discussing a new trend in North American M&A activity. It seems that after a couple of decades of inactivity abroad, Japanese companies are becoming very aggressive in North American M&A circles. This is how Business Insider’s Joe Weisenthal put it:
“Now in 2012, we're starting to see Corporate Japan expand its territories…
So what's going on? Is it because Japan owns a ton of US dollars that now it needs to collect on, as everyone feared in the 80s?
Heck no. The CEO of Softbank made it clear at the press conference when it acquired Sprint. Growth in Japan is pretty much non-existent. If you want to expand, you have to go abroad, and the US still looks like a fertile territory. It's pretty much as simple as that.”
Why U.S. Targets?
This is an interesting take on current M&A activity. Despite all the negativity we hear about our economy, taxation, fiscal cliffs, and federal spending, for offshore corporate players the U.S. market still looks inviting. This is especially true for companies that have cash and are located in countries like Japan and facing limited economic prospects at home.
When organic growth opportunities are limited and you have approval for expansion via acquisitions, North America, especially the U.S., is very attractive.
We saw this clearly earlier this year when our client, Pure Chem Separation, L.P., was acquired by Diversified CPC, International Inc, a subsidiary of Sumitomo Corporation. Even though Pure Chem was a relatively small acquisition for Diversified and Sumitomo, it proved that size was not significant to these buyers; strategic fit was paramount.
This was also true of a deal we recently closed, where our client, Wayne’s Inc., was acquired by Crary Industries Inc., whose parent is also located in Japan (Yamabiko Corporation). Both transactions highlighted the current interest Japanese companies have in the U.S.
According to the Wall Street Journal:
“With more than $34 billion in foreign investments so far this year (first six months), Japan is on pace to equal last year's record $84 billion, which had propelled the country to No. 3 in global deal rankings, from No. 9 in 2010. Last year's deal volume was nearly triple that of the peak during the go-go 1980s and early '90s.”
Earlier this year, analysts estimated that Japanese companies were sitting on approximately $2.6 trillion in cash, which is even more than the amount U.S. strategics have. So Japanese acquisition plans should only continue to grow for years to come.
The large amount of cash coupled with stagnate (or worse) economic growth at home, and it is no wonder Japanese corporate players are looking offshore for growth. Or as Yasuhiro Sato, chief executive of banking giant Mizuho Financial Group Inc., a major financier of M&A deals for its corporate clients, describes it:
"Japanese companies feel they have no choice but to battle it out overseas. It's a question of survival."
What This Means for You
This is more great news for owners of companies in the U.S. As we learned when we sold Pure Chem to Diversified, if a Japanese company already has a U.S. presence, they are aggressively looking to expand in North America.
Naturally, not every U.S. company is a target for an offshore buyer. But don’t worry, there are many domestic buyers that are just as active right now. Given the current state of uncertainty in our country, more and more business owners are moving up the timing of their exit plans.
If you have reached a point where the burden of owning your company has surpassed the joy of ownership or if you are interested in learning more about current buyer activity in the U.S., I invite you to attend one of our complimentary, no-obligation M&A seminars.
These educational events are designed to help business owners learn how to close deals that have favorable structures with optimal buyers.
The first step to achieving an optimal sale is contacting us to find out if your company is a good match for our services. Click here and we will be in touch, or call us at 877-213-1792.
No matter what, keep an open mind when you approach the market and realize that buyers can come from a variety of sources and locations. The only limit in finding them is your creativity and time.
Carl Doerksen is the Director of Corporate Development at Generational Equity.
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