Japanese companies are increasing overseas acquisitions, using their cash-hoards to snap up assets beaten down by the global credit crisis and economic slowdown.
The value of foreign purchases by Japanese companies this year has already topped last year’s total by 91 percent, data compiled by Bloomberg shows. That’s the biggest gain among the world’s 10 largest markets and contrasts with fewer deals in the US and UK, where credit is drying up after the subprime rout.
Takeovers by companies including TDK Corp and Daiichi Sankyo Co are putting Japan on course for its biggest buying spree since the 1980s bubble, when Japanese buyers overpaid for assets like New York City’s Rockefeller Center and California’s Pebble Beach Golf Links.
“Pebble Beach and those kinds of trophy assets, it’s clear those were crazy deals, but now they’re buying things that are earnings enhancing and using cash that’s been generating no income to do it,” said London-based Scott McGlashan, who manages Japanese stocks as part of J O Hambro Capital Management Ltd’s US$4.7 billion in assets. “It’s a very opportune time for Japanese companies looking to make acquisitions overseas.”
Japanese companies have cash equal to 11 percent of their assets, the second-highest amount after China among the world’s 10 biggest equity markets, Bloomberg data shows.
Foreign purchases climbed to US$48.6 billion so far this year from US$25.4 billion for all of last year, Bloomberg data show. The value of deals in the US is down 67 percent from last year and UK acquisitions are off 66 percent as debt financing costs climb.
McGlashan said he is on the lookout for deals that mirror Daiichi Sankyo, Japan’s No. 3 drugmaker, which has gained 11 percent since it agreed June 11 to buy India’s biggest drugmaker Ranbaxy Laboratories Ltd for US$4.6 billion. Nikko Citigroup Ltd analyst Hidemaru Yamaguchi boosted his share price estimate for Daiichi Sankyo by 7 percent after the purchase.
TDK, Japan’s largest maker of magnetic heads for hard-disk drives, announced plans last month to acquire Germany’s Epcos AG, which makes components for Nokia Oyj, for US$1.87 billion. TDK paid 6.1 times Epcos’s earnings before interest, taxes, depreciation and amortization, or Ebitda, less than the 8.7 times average for Epcos’s 15 closest European peers.
“In general, M&A doesn’t benefit the acquirer because it tends to occur during boom times when management is overconfident and they pay too much,” said Seiichiro Iwasawa, chief strategist at Tokyo-based Nomura Securities Co Ltd. “Japan is unique because they remember their massive bubble-era failures and have such low confidence that they are being extremely careful to do deals that make sense.”
The buying spree helped Goldman Sachs Group Inc report record profit in Japan for the year ended March 31. The New York-based firm holds the top spot among merger advisers for deals where Japanese companies are acquiring overseas assets, Bloomberg data shows. UBS AG ranked second and Nomura Holdings Inc was first among domestic companies.
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