Insight Bite: Can overseas acquisitions save Japan’s shrinking economy?

Japan is striking up overseas deals at an unprecedented rate. Over the last four months, the country has been involved in 238 outbound deals valued at a total of $29bn, making 2018 so far, the biggest period for Japanese M&A since records began.

Not only that, but the percentage of outbound deals as a share of total deal volume has also reached a record high, with US$146 billion from 587 deals during the first nine months of 2018 – a figure tipped by the pivotal takeover offer of British drug firm Shire by Takeda Pharmaceutical’s, which at $46billion is Japan’s biggest outbound deal on record.

The Bank of Japan’s negative interest rate policy, an ageing population, and demand from shareholders for better returns on equity, are all pushing the country to gamble on overseas acquisitions. This is supported by the banking sector, which is keen to finance such deals in absence of the demand for domestic loans, and a shift in the country’s corporate thinking promoted by Abenomics –  the economic revival programme of Japanese Prime Minister, Shinzo Abe.

As the economy contracts, time is running out for corporate Japan to seal the deals that could catalyse a recovery, says Kenneth Lebrun, an M&A lawyer at Shearman & Sterling in Tokyo:

“If Japanese companies wait another 10 years, their domestic market would have already shrunk and they may no longer have the financing advantage” said Mr Lebrun to the Financial Times. “This may be the only chance where there is cheap money and plenty of cash on hand to do the kind of deal that lets companies thrive for the next 30 years.”

Larger companies are leading this wave of acquisitions, and some of the country’s biggest  names – like Hitachi, Ricoh, Sumitomo and Fujifilm –  have announced intentions to continue signing outbound deals over the next three years.

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