Japan’s pursuit of overseas acquisitions has not been impaired by the yen’s drop to 24-year lows, as suitors are intent on offseting grim domestic growth prospects and developing new revenue streams, investment bankers said.
A 15% decline in the yen against the U.S. dollar this year will make purchases abroad more expensive for Japanese firms, yet bankers have been busier than last year with strong deal pipelines.
Japan’s relaxation of pandemic-induced travel bans has also unleashed pent-up demand for outbound deals as suitors can now visit and assess targets’ assets, the bankers said.
M&As abroad drove growth in Japanese dealmaking in the last decade until COVID-19 hit, complicating site visits and face-to-face meetings.
Outbound deals numbered a record 947 in 2019, over 6 times higher than inbound, before slowing to 693 in 2020 and 731 in 2021, Refinitiv data showed.
The first half of 2022 saw the number dip 3% year-on-year to 334, the data showed, but bankers said there are signs of momentum returning in the second half.
“A weak yen has an impact as it makes an outbound deal more costly and raises the bar for financing,” said Koichiro Doi, head of Japan M&A for JPMorgan.
“But buying a U.S. company means buying future cash flows that would be in the dollar. Primarily, it’s an exchange of equivalents.”
Last month, Sekisui House Ltd agreed to buy Texas homebuilder Chesmar Homes LLC for about $514 million. Osaka-based Sekisui expects U.S. sales to help recoup the investment early despite the weak yen, a spokesman said.
Sapporo Holdings Ltd also last month announced the $168 million purchase of California-based craft beer maker Stone Brewing. “It was our long-term goal to gain manufacturing bases in growth markets,” a spokesman said.
Bankers have seen outbound M&A interest across sectors as varied as financial and manufacturing and geographies as distant as Southeast Asia and the United States.
Shinsuke Tsunoda, senior managing director of Nomura Securities, said a shrinking domestic population leaves companies with few choices for growth beyond realigning operations at home or expanding abroad.
Overseas businesses are “must-haves” for such companies so a weak yen is no deterrent, Tsunoda said.
He said buyers would probably care more about changes in the business environment, such as rising material and energy costs or supply chain disruption, which complicate business strategies and make it harder to evaluate potential acquisition targets.
The value of announced M&A deals worldwide for the first half of the year was down 21% from a year earlier at $2.2 trillion, Refinitiv data showed, dampened by raging inflation, recession fear and the higher cost of debt.
Consequent difficulty in accessing cheaper financing may prompt the sell side to turn to deep-pocketed Japanese buyers.
As a deal frenzy in the past two years in the United States and Europe has cooled, sellers may need to broaden their scope to include global investors, said Koki Kaita, head of Daiwa Securities’ M&A team for industrials.
“That could be positive” for Japanese companies, Kaita said.
Reuters