To buy or not to buy?

The increasing appetite of cash-rich Japanese companies for overseas assets has been exemplified by both Nomura Holdings (Japan's largest trading house) agreement to purchase the European operations of Lehman Brothers and Mitsubishi UFJ Financial Group's acquisition of a US$8.5bn 20% stake in Morgan Stanley. 

Speaking as to why such acquisitions are possible in the current economic climate, Bohrer notes that: "The huge inbound investment in Japan that has been occurring over the last couple of years means that there are a number of Japanese companies with a lot of cash on their balance sheets. They are realising that now is perhaps a once-in-a-business-cycle opportunity to snap up some companies that otherwise would have been prohibitively expensive." According to Bohrer, Japanese companies are now in a position where they have tremendous amounts of cash that they are looking to utilise. 
And while the US has traditionally been the most-favoured nation for Japanese outbound investment, companies in the samurai nation are showing an increased predisposition to pursue inorganic growth opportunities throughout the region, with BRIC (Brazil, Russia, India, China) countries in particular gaining in popularity with Japanese trading companies. "BRIC nations, especially India and China, are quickly becoming a target for many Japanese companies looking to get in on the bottom floor," notes Dixon. 

Atsushi Oishi, a partner at Mori Hamada & Matsumoto, agrees. "Our Japanese clients are always interested in new and emerging markets. We have received more instructions than usual from companies wishing to explore Chinese and Indian markets with some also looking very interestedly at South East Asia."
Last month, Japan's top drug maker Daiichi Sankyo launched a US$5bn bid for Ranbaxy Laboratories, an Indian pharmaceuticals company while NTT DoCoMo, the country's top mobile phone operator, has made no secret of its desire to invest in emerging IT infrastructure markets in markets such as Bangladesh. 

As the above indicates, the range of Japanese industries active in the current M&A surge has broadened, and this is a trend that will only increase as time goes on, with companies in sectors such as electronics, parts and industrials also likely to get in on the act. A big part of this, according to Bohrer, is the want of Japanese companies to expand their global footprint. 
Whereas in the past, especially during the 'Japan Inc' boom of the 1980s, there was interest in targets with real estate assets, the current boom will likely see Japanese businesses target companies with integrated global operations. 
"A lot of the transactional activity we're seeing at the moment is a result of Japanese companies wanting to extend overseas and this about them being able to support their growth going forward. There may be no comparative cost advantage for them going overseas but, strategically, it's vital for their survival," he says. 

And survival, according to all lawyers that spoke to ALB, means looking beyond the traditionally close dependence that Japanese companies have on the domestic market. A market that is set to contract even further as the population continues to grey, and interest rates remain low and investment yields even more so. 
Yet, while many believe further M&A activity to be something of a fait accompli, a number of historical and cultural factors are set to dictate the pace and pattern of cross-border activity in the short to medium term. According to Bohrer, the negative experiences that many of the nation's latter-day zaibatsu had in the 1990s may guide behaviour this time around. 
"At the start of the 1990s, Japanese companies were on a very large overseas buying spree. Many felt, in retrospect, that they had overpaid for those assets and got their fingers burnt, and this is still in the back of management's mind," he says. "I don't expect Japanese will all of a sudden open their chequebooks and pay whatever it takes." 
Sato and Oishi agree, noting that, as tempting as it may be for Japanese companies to buy up on the cheap, the fiscal responsibility traditionally associated with Japanese business will win out. "Japanese companies are very prudent and cost conscious and I really don't see this changing in the future no matter how alluring things may become," Sato says.
If matters of fiscal prudence are to govern patterns of overseas acquisitions, then cultural factors seemingly ingrained in Japanese business will also play a large role. The emphasis placed on seniority, stability and continuity over things such as individual incentives and profits may need to be redressed should the company-led samurai boom eventuate. 

Next: Bending the 70:30 'rule'

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