In splashing $1.3 billion for Britain's Financial Times, media group Nikkei is just the latest in a string of Japanese companies driven to look overseas to escape poor growth prospects from a rapidly aging domestic population.
In splashing $1.3 billion for Britain’s Financial Times, media group Nikkei is just the latest in a string of Japanese companies driven to look overseas to escape poor growth prospects from a rapidly aging domestic population.
Flush with abundant bank funds available at near-zero interest rates, and bolstered by stock markets at multi-year highs, Japan Inc is not short of capital to plough into overseas bids in search of profits that remain stubbornly hard to generate at home.
Japanese corporations have in the past faced criticism for moving too slowly on the acquisition trail, but Thursday’s last-minute bid by Nikkei to snatch the famous pink-hued newspaper from under the nose of Germany’s Axel Springer suggests they are getting better at it.
“Japan corporates are definitely wanting to acquire more. Corporate profits have risen a lot and with that has come increased confidence for CEOs to make quick decisions,” said Mark Williams, head of investment banking for Asia ex-Japan at Nomura. “They are far more receptive to international ideas and we definitely see more deals coming.”
Nikkei’s coup was followed on Friday by a bigger deal from life insurer Meiji Yasudas Life Insurance Co, which agreed to buy StanCorp Financial Group for $5 billion.
That deal nudged Japan past China to become Asia’s biggest acquiring nation this year, according to Thomson Reuters data.
After hitting an annual record of $83 billion in 2012, Japanese outbound activity has slowed, but companies are making a renewed pushed this year, partly under pressure to improve efficiency.
In 2015, Japanese companies have launched $53.5 billion worth of deals and are on track for the country’s second-best M&A year on record. In comparison, Chinese companies have announced $50 billion deals in the same period.
Deals earlier this year have included Japan Post’s $5 billion acquisition of Australia’s Toll Holdings and Canon Inc’s purchase of Swedish video surveillance firm Axis AB.
A major driver is that, over the longer term, Japan’s demographics give a bleak prognosis for domestic demand.
The population has been falling for a decade and is projected to drop from 127 million to 87 million by 2060, 40 percent of whom will be over 65.
“It highlights the relentless desire to basically spread their wings, recognising that the Japanese economy is a greying one and the capital that they have has to be put to work elsewhere,” one person familiar with the FT deal said.
Meanwhile, Prime Minister Shinzo Abe’s so-called ‘Abenomics’ policies, including a programme of unprecedented monetary stimulus, is giving the country’s companies easy access to cheap cash.
Japan’s new corporate governance code that came into force last month is putting greater focus on profitability and capital efficiency, and a successful acquisition is the best way to achieve it, bankers say.
That is also putting pressure on Japanese companies to deploy their cash balances, which Goldman Sachs estimated reached 87 trillion yen ($702 billion) in fiscal year 2014.
Bankers are expecting deal flows to pick up as, despite the recent flurry of activity, still only 7 percent of Japanese corporates cash deployment was for M&A between 2005 and 2013, while a chunky 57 percent went on capital expenditure, Goldman Sachs said.
“They certainly have a lot of money in the system now. The cost of funding is very, very low too, but there’s not much that you can do to deploy in Japan,” the person who worked on the FT deal added. ($1 = 123.9100 yen)