Japan’s quake spurring Japan M&A to decade high

(Reuters): Japanese companies from eye shadow makers to insurers are stepping up the pace of their overseas expansion as the devastating March 11 earthquake provides another spur to escape their moribund domestic economy.

It could, investment bankers predict, help drive Japan-related merger and acquisition activity to its strongest year since 1999, with as much as 15 trillion yen ($187 billion) worth of deals estimated in 2011.

That post-quake boom is already underway. In May the value of mergers and acquisitions (M&A) by Japanese firms rebounded to 2.5 trillion yen, up from only 616 billion yen in April, according to data compiled by Thomson Reuters. That pushed the accumulated value of deals this year to 5.8 trillion, yen double the same time last year.

“It’s proof that M&A has become an important strategy for Japanese companies,” Kentaro Okuda, joint head of global M&A at leading brokerage Nomura Holdings, told Reuters. “Without M&A there’s no next step, more companies are convinced that without it they won’t achieve growth.”

After two decades of recession as Chinese, Taiwanese and South Korean rivals overtake them the incentive to break out from deflation, population decline and anaemic existed before the quake. The new post-quake spur to go overseas is geographical risk.

Customers around the world are uneasy about doing business with companies that could be reduced to rubble at any time. To keep them buying the Japanese have to show the next temblor won’t halt production.

It is a change that Yuichi Jimbo, head of investment banking at Citigroup, says he has noticed since the quake.

“The push to add overseas production sites and expand foreign sales is spreading, and cross-border M&A is set to rise,” Jimbo said.

Accompanying that, Jimbo says, may be a jump in demand in equity financing as companies without enough cash look for money to fund their M&A ambition beyond Japan’s quake-prone shores.

Acquisition deals since the quake point to the broad nature of corporate Japan’s M&A activity.

In April online brokerage Monex Group said it would fork out $411 million for U.S. peer TradeStation Group in a bid for new pastures.



Smaller deals have included cardboard packing maker Rengo’s $183 million purchase in April of 29 percent of Chinese company Hung Hing Printing, and cosmetics maker Pola Orbis $91 million paid for a U.S.-based maker of skin lotion, H20 Plus.

There have been mega deals too including the biggest so far this year; Takeda Pharmaceutical’s announcement in May that it will pay 9.6 billion euros ($14 billion) for privately held Nycomed, a Swiss maker of over-the-counter remedies and lung cancer drug Daxas.



Nomura’s Okuda expects more from Japan’s drug makers in the coming months as they look to gain scale and grab the best drugs around the world.



Energy-related deals too may also burgeon in the wake of Japan’s nuclear crisis, Okuda predicts, amid reawakened interest in renewable energy sources and as companies look to secure oil and gas rights needed to make up for lost nuclear generating.



“It wouldn’t be surprising to see more activity by drug companies or energy-related firms,” said Okuda.



Another spur for M&A, say bankers, is alluring targets, on sale from private equity firms they bought five or six years ago and which they now want to exit. A strong post-quake yen is helping too making the yen of cash-rich Japanese bidders stretch further.