Japan Inc poised for more deals as China faces restraints
Japan Inc may become a more important force in dealmaking this year as its cashed-up companies seek to buy growth prospects elsewhere in the world and as Beijing’s crackdown on capital outflows prevents some Chinese companies from making foreign acquisitions, bankers and lawyers say.
Facing tepid prospects at home after decades of stagnation amid a shrinking population, Japanese companies spent US$93 billion overseas in 2016, little changed from a record $96 billion in all of 2015, but up from just $51 billion in 2013, Thomson Reuters data show. Chinese companies spent $217 billion abroad last year.
With Japanese companies hoarding a record $3.2 trillion in cash, according to government data, outbound acquisitions are expected to maintain a fast pace in 2017. And while the recent weakening of the yen against the dollar will make American acquisitions more expensive in yen terms, it does mean that Japanese companies will tend to be earning more of the Japanese currency from overseas assets.
Among recent deals, Asahi Group Holdings in December beat rivals, including China Resources, to buy the eastern European beer brands of Anheuser-Busch InBev for €7.3 billion ($7.6 billion).
China’s State Administration of Foreign Exchange is vetting transfers abroad worth $5 million or more, and in particular is increasing scrutiny of major outbound deals to curb capital outflows that are hurting the value of the yuan, sources have told Reuters.
“Japanese buyers have a low cost of capital, strong cash balances and a strong appetite to diversify out of their home market,” said Mayooran Elalingam, head of Asia-Pacific M&A with Deutsche Bank in Hong Kong. “At the same time, they do not have the regulatory or political constraints of a Chinese purchaser.”
Japan’s cashed-up insurers are likely to step up their aggressive hunt for overseas businesses, the bankers said. For example, Meiji Yasuda, Japan’s third-largest private-sector insurer by assets, is attracted to the life insurance and wealth businesses of Australia and New Zealand Banking Group, said a source close to the unlisted Tokyobased company.
Japanese beverage makers could buy abroad, an M&A banker at a European investment bank told Reuters, citing Suntory Holdings Ltd and Kirin Group Holdings Ltd. Kirin and Asahi Group Holdings are among investors that have expressed an interest in buying stakes in Saigon Beer Alcohol Beverage Corp, or Sabeco, Vietnam’s biggest brewer, and its smaller rival Habeco.
Kirin declined to comment. Suntory said it was not considering any specific deals and was instead focused on integrating its 2014 purchase of Beam, the US-based maker of Jim Beam bourbon whiskey and other drinks.
An Asahi spokesman said it was “looking with interest” at Sabeco and Habeco. Sabeco declined to comment and Habeco did not respond to a Reuters request for comment.
The Japan-China rivalry may also play out in the natural resources sector this year, said Alexis Papasolomontos, an M&A partner at the law firm Herbert Smith Freehills. The sector is traditionally favoured by China but is also of growing interest to Japan.
Japanese buyers spent $9 billion in the energy and materials sectors in 2016, up from $5 billion in 2015, Thomson Reuters data show. China, focused on acquiring energy and food assets, splurged a record $87 billion in that sector versus $16 billion a year earlier.
Still, Japan’s record with overseas acquisitions has been spotty. Toshiba Corp said on Dec 27 that it was considering booking a goodwill impairment loss of several hundred billion yen on a US nuclear power acquisition made by its Westinghouse division, sending its stock plunging.
And Nomura Holdings Inc, which acquired the Asian and European operations of Lehman Brothers following the collapse of the US investment bank, announced a painful restructuring earlier last year after losing $3 billion abroad in six years.
Century Tokyo Leasing was among the companies that lost out to a unit of China’s HNA Group in a battle to buy a CIT plane leasing unit, according to people familiar with the matter. In manufacturing, the sale of General Electric’s appliance unit generated interest from Japanese buyers but they didn’t compete seriously against a subsidiary of Shanghai-based Qingdao Haier which won the auction, one of the people told Reuters.
“We expect to continue to see a lot of activities in every sector,” said Yoshihiko Yano, head of Japan M&A at Goldman Sachs. “Given the decreasing population and ageing society, outbound M&A for growth outside Japan is inevitable for Japanese companies.”
Japanese companies have been drawn to the US market because its economic growth has been generally higher than Japan’s, and as the American population rises. US President-elect Donald Trump’s pledges to cut business taxes, spend on infrastructure and slash business regulation means the appeal of the US market is likely to increase.
“America’s appeal won’t change for Japanese firms,” said Shinsuke Tsunoda, global head of M&A at Nomura Securities.
Underscoring Japan Inc’s faith in the US under Trump, SoftBank Group Corp head Masayoshi Son met Trump shortly after the US election and pledged to invest $50 billion in US startup companies.
Japanese companies may also gain an edge over their Chinese rivals because of Trump’s anti-China rhetoric, lawyers said.
US-China relations are likely to go through a period of increased tensions, at least during the early months of his presidency, after Trump threatened to impose punitive tariffs on Chinese imports into the US and label China a currency manipulator.
“Japanese buyers have a low cost of capital, strong cash balances and a strong appetite to diversify out of their home market. At the same time, they do not have the regulatory or political constraints of a Chinese purchaser” MAYOORAN ELALINGAM Deutsche Bank