Yuzo Otsuka, UBS’s head of mergers and acquisitions in Japan, talks to FinanceAsia about why Japanese outbound M&A volumes have dropped from 2011’s jumbo level, his expectations of whether deals will pick up again and Japanese companies' attitude towards leverage.
Edited excerpts follow from an interview conducted in UBS’s Tokyo office:
Why are Japanese companies making acquisitions overseas?
Japanese companies are trying to expand outside of Japan for lots of reasons such as little domestic growth, a stringent labour market and a very high corporate tax rate, second only to that in the US.
Why have Japanese outbound M&A volumes shrunk versus 2011?
2011 was the recent peak in outbound volumes; since then volumes have decreased.
However, Japanese companies’ desire to expand abroad has not changed, rather they have used up so much capital and internal management resources in recent acquisitions that they need some time to integrate acquisitions and raise fresh capital.
Still, clients are busy negotiating deals and M&A statistics tend to be a lagging indicator. Very recent deals include: NEC’s acquisition of A123 Energy Solutions and Santen Pharmaceutical’s purchase of eye treatment rights from Merck in Japan.
Has Japan Inc’s attitude to leverage changed?
More Japanese companies have decided they will take on debt if they can achieve their ultimate goal of growing overseas.
It is true that, in many cases, the management of large Japanese companies are struggling with the idea of risk-taking; should they lever up or be conservative? Management are balancing constituencies within the group on either side of the debate.
Are shareholder activists likely to spur more restructuring at Japanese companies?
Exporters have been accumulating profits, helped by favourable forex movements, and are under increasing pressure to distribute retained earnings to shareholders in the form of earnings and more restructuring.
For example, activist hedge fund Third Point bought Sony shares last year and called for reform.
But this phenomenon has just started.
