Citizen's Swiss role

The Japanese watchmaker announces the acquisition of Prothor Holdings, the Swiss maker of La Joux Perret, Prototec and Arnold & Son watch brands.
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The demand for high-quality Swiss watches is on the rise
<div style="text-align: left;"> The demand for high-quality Swiss watches is on the rise </div>

Asia’s companies are arguably the most important players in global M&A at the moment. Citizen Watch’s acquisition of Prothor Holdings captures the trend explicitly: a cash-rich Japanese company buying a high-end European set of brands and technology to improve its sales into emerging Asia, especially China.

The ¥5.76 billion ($72 million) deal values Prothor, the Swiss maker of La Joux Perret, Prototec and Arnold & Son, at just over two times 2011 sales of Sfr31.5 million ($34 million). The punchy valuation reflects the deal's merits. The Swiss watch industry is in a state of ferment at the moment due to the decision of Swatch — the leading and largest horologist in the market — to stop allowing smaller Swiss watchmakers to use its technology, especially the hairspring technology central to mechanical movements. Therefore those companies who can bring this technology to the table are looking to vertically integrate with the top end brands. During the past year, for example, Richemont bought Swiss watch company Roger Dubuis.

The Citizen deal marries Japanese technology with the Swiss brand, although the Japanese side is very keen for the Swiss to maintain independence and for the deal not to be seen as a takeover.

“The demand for high-class Swiss mechanical watches has been increasing, primarily in emerging markets, including China, and we think that it is vital that we enter into the high-class watch market in order to achieve further growth of our watch business,” said Citizen in their statement announcing the deal. “This acquisition will contribute to the strengthening of our R&D ability in the area of Japan-made mechanical movements in the future.”

The deal was conducted as an auction. DC Advisory Partners, the corporate finance arm of Daiwa, advised Citizen. Other bidders in the auction have not been released.

According to Taeko Saito, DC Advisory’s Paris-based director who ran the deal, Japanese companies are becoming more and more important in terms of global M&A. For example, in 2010, Japanese companies were 10th in the league table of M&A activity, but they jumped last year to number three — and Saito said they will maintain or improve on that position. The deals are driven partly by the strength of the yen, but also by strong corporate balance sheets after years of paying down debts and a need to acquire growth in new markets.

The deal was announced on March 5 and will close in early April. There are no conditions precedent that need to be met prior to closing, nor is the deal of a size that necessitates an extraordinary general meeting for Citizen Holdings. However, by formally closing in April, the deal will fall in the next Japanese fiscal year.

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