Characteristics of Japanese strategic buyers
Why Japanese companies want to acquire foreign companies
Japanese corporations are buying companies abroad because:
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the domestic market is stagnant as the country’s population is shrinking and aging
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they are facing intensified competition with overseas players
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they have plenty of surplus cash on their balance sheet
Through acquisitions, they are aiming to expand their global market share for their existing product lines, acquire complementary product lines and capabilities, and diversify into new businesses.
The survey by Japan's Ministry of Economy, Trade and Industry found that a large proportion—over 40 percent of the respondents—are actively searching for acquisition targets, which means they are not sitting around waiting for investment banks to pitch deals.
Some of them have a system in place to search for potential acquisition targets, creating a long and a shortlist, which are periodically updated to reflect the changing business environment.
There is an opinion that Japanese companies should keep an eye on the portfolio companies of private equity firms, which will be eventually sold within a few years in exit processes.
Japanese companies generally prefer to avoid the auction sale process because:
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the process will not allow them enough time to examine the target company,
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the scope of due diligence will be limited, and
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there is more uncertainty about winning the bid.
Some companies spend three to ten years researching and analyzing the target before the acquisition. They collect information by forming a business tie-up with the target company, secretly visiting its retail stores or factories, and periodically visiting its head office to exchange a business perspective.
Some of them keep in touch with the top management of target companies in their shortlist and indicate their intention of a friendly acquisition someday.
How Japanese companies want to buy
Japanese companies aiming for global expansion need to make a series of acquisitions to gain access to complementary customer bases, technologies, functions, and talents.
Some of them start from acquiring a minority stake, although a full acquisition proved to be more successful according to an empirical study.
They may start from small acquisitions to gain experience. For example, a company set the budget ceiling for acquisition at five percent of its market capitalization.
What kind of target companies they want to buy
Japanese companies want to acquire foreign companies that fit their ten-year growth strategy.
Some of them have a 20-year vision.
Source:
”Wagakuni Kigyo niyoru Kaigai M&A Kenkyukai Hokokusho (Report by the Study Group on Overseas Cross-border M&As by Japanese Companies)”
https://www.meti.go.jp/press/2017/03/20180327003/20180327003-4.pdf
Compiled and translated