JAPAN OVERSEAS M&A AND ACTIVIST SHAREHOLDERS – MORE OF BOTH

 

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Japan Inc. has outstripped European companies in overseas M&A during the first half of 2018 according to figures of Deallogic looking at vice-versa FDI between the U.S. , Europe and Japan.

By spending a record 112 bn USD on overseas mergers and acquisitions in the first half of this year, Japanese corporates overtook their European peers for the first time, lagging only  behind U.S. companies who spent 175 bn USD in the two other regions.

More interestingly is even the long-term trend. Since 2010 the annual total value of Japanese acquisitions of U.S. and European firms has been more than three times higher compared to the annual average between 2000 and 2009.

For many years, the Japan-specific structural factors behind this rise have been clear and long-term predictable, i.e. a declining population and stagnating market at home.

Now you can add another – much more short-term – factor to this: activist shareholders.

Spurred by abundant global risk capital and invited by cheap valuations in Japan and serious improvements of the Japanese corporate governance code, activist shareholders have come back to Japan. During 2017 alone, 28 Japan-headquartered companies were publicly targeted by activists (a 20% increase over 2016 and even more than in Germany with only 19 such cases).

I will write more on this trend of rising shareholder activism soon. For the time being, I will just stick to a simple prediction. Growing shareholder activism will further spur the M&A drive of Japanese companies abroad.

First, activist shareholders tend to scrutinize corporate strategies and push for shareholder value adding steps. This often includes the sale of non-strategic assets and investments into other areas, often leading to acquisitions overseas.

Second – and this might be even more important – Japanese firms are increasingly aware of this trend and have started to become their own activists.

It might be a bit far fetched to say that Takeda Pharmaceutical`s decision to make the acquisition of Irish drugmaker Shire for a whopping 62 bn USD due to anticipating activist shareholder pressure.

But it is exactly such kind of pressure on Japanese firms that will be climbing in the months and years to come — and lead to further rising overseas M&A by exactly these firms. So stay tuned.

Jochen Legewie

Jochen Legewie

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