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Japan’s M&A boom and how Australia can capitalise

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Japan’s M&A boom and how Australia can capitalise article image

Chinese investments may be capturing the headlines, but Japan has actually outspent its Asian rival amid a boom year for Japanese outbound merger and acquisition (M&A) activity.

With no apparent sign of a slowdown, Australian firms have been urged to capitalise on Japan Inc’s new wave of overseas investment.

Speaking at the Queensland Japan Chamber of Commerce and Industry last month, Queensland’s Trade and Investment Commissioner for Japan, Tak Adachi, said a shrinking domestic market was forcing Japanese firms to go abroad for growth opportunities, including in Australia.

Headlining such moves was the February move by the venerable state-owned postal institution, Japan Post to acquire Australia’s biggest freight and logistics firm, Toll Holdings, in a $7 billion takeover as part of Japan Post’s global expansion plans.

Stating that its acquisition was key to Japan Post becoming a “leading global logistics player,” Toll chairman Ray Horsburgh said in a statement: “Japan Post is one of the world’s leading postal and logistics companies and Toll is the largest independent logistics group in the Asia Pacific. Together, this will be a very powerful combination and one of the world’s top five logistics companies.”

Japan Post said the Toll acquisition formed part of plans to “reinforce its domestic operations while focusing on the fast-expanding Asian market as part of efforts to grow as a comprehensive international logistics company.”

Active investors

While the Toll deal captured the headlines, Japanese firms have been active investors across a range of sectors in Australia, spanning agriculture, beverages, property, retail and recruitment.

In January, recruiter Chandler Macleod announced it had agreed to a takeover by Japan’s Recruit Holdings for $290 million, benefitting from the Japan-Australia Economic Partnership Agreement (JAEPA) that raised the threshold for Foreign Investment Review Board review from $248 million to more than $1 billion.

Property developers including Daikyo and Sekisui House are expanding their investments in Australia’s housing sector, while Japanese retailers Muji, Uniqlo and Mos Burger are eyeing Australia’s cashed-up consumers.

“It’s clearly no surprise that they are pushing ahead with their global expansion plans,” PricewaterhouseCoopers’ Japan head, Jason Hayes told The Australian.

“Many Japanese companies have been in a state of suspended animation in terms of coming to grips with globalising, but now we are seeing many of them starting to move.”

Services is the new growth area

With Japan’s population forecast to fall below 100 million by 2050, the demographic imperative has forced corporate Japan’s rush abroad despite the higher costs imposed by a weakening yen.

Japan has $131 billion invested in Australia, making it Australia’s third-largest source of foreign investment, compared to Australia’s $50 billion invested in Japan.

However, the Japan Post bid could signify a push into new sectors compared to the traditional mainstays of agriculture and resources.

“Services is the new growth area, given that it accounts for around two-thirds of both nations’ economies, and we’re already seeing this with the Recruit and Japan Post investments,” said Ko Nagata, managing director of Tokyo-based Global Sky Group.

“There’s big potential for further growth in Australia-Japan trade, spurred by JAEPA, the Japan tourism boom and overseas drive for growth by Japanese companies,” he added.

According to Japanese government data, there are currently more than 63,000 Japanese-affiliated companies overseas, up 5 per cent from the previous year, with key targets including North America, Southeast Asia, Europe and Australia. In 2015, Japan topped the leaderboard in overseas deals with an estimated $53.5 billion in the first nine months compared to China’s $50 billion.

With record corporate profits and an estimated $2 trillion of cash holdings, Japanese firms have heeded Prime Minister Shinzo Abe’s call to go global.

Opportunities in a range of sectors

For Australian firms, having an internationally orientated business with growth prospects such as Toll is an attractive prospect for Japanese partners, but the opportunities are seen in a range of sectors.

Having a global footprint to help Japanese companies expand supply chains or develop markets is a key advantage, particularly for Japanese manufacturers seeking growth overseas, according to M&A adviser Richard Folsom.

"We will continue to see strong interest from companies in Japan looking for opportunities in Australia. They have pockets full of cash and everyone is looking to invest," ANZ’s Peter Davis told the Sydney Morning Herald.

For Australian firms seeking investment and Japanese firms looking to go global, it could be a match made in heaven. 

Anthony Fensom is an experienced business writer and communication consultant with more than a decade’s experience in the financial and media industries of Australia and Asia. 

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