Throughout your career at Nomura, you have been based in London, Tokyo and now Hong Kong. What’s the rationale behind your recent move?
It’s no coincidence that Nomura has recently relocated several senior executives to Hong Kong as part of our new management’s strategy to broaden and strengthen the firm’s platform in the region. As Asia’s global investment bank, we are in a unique position to build on our home advantage and capitalise on the long-term growth opportunities here. Hong Kong is one of the most dynamic financial centres in the world and from my perspective, a natural base from which to drive the next phase of Nomura’s M&A business.
Do you think outbound M&A from Asia will remain as robust in 2013 as it was in 2012?
Outbound M&A from Asia is set to be a key ongoing trend in 2013. Across the board, Asian companies are looking towards developed economies where they can take advantage of low valuations to pick up interesting assets. You will see more long-term investments similar to CKI’s acquisition of Wales and West Utilities in the UK where the business offers stable cash flows from an infrastructure asset in a well regulated market. However, given the decline in the overall macro environment, buyers will be more cautious and will take a closer look at the underlying performance of the asset. The good news is that the Western world offers the right balance of medium risk and medium return, so we expect more deals to get done.
A big theme for 2013 will be outbound deals from Japan. Japanese companies are hungry for growth opportunities overseas and the current yen exchange rate makes acquisitions appealing. If you look at the numbers, Japan has become the second largest acquirer nation behind the US over the last twelve months and is steadily growing in importance.
For China, the headline transactions remain SOE-driven resources deals, but do you think we will also see an increasing number of smaller, non-SOE outbound M&A deals in 2013 that are about Chinese companies injecting capital in distressed assets abroad?
SOEs are still a significant driver of outbound deal activity from China but we are slowly seeing the emergence of private corporates. We expect this to continue but at a gradual pace. For example, Nomura worked on a recent transaction for Weichai Power [which is a state-owned entity] who acquired a stake in Kion, Europe’s leader in industrial forklift truck production. This deal was one of the largest-ever outbound M&A transactions from China into the industrial space. I think corporates will remain cautious about investing in distressed situations. These will be of more interest to specialist players such as hedge funds and private equity sponsors.
Are Europe and the US more or less open to China’s overtures now that liquidity is an issue in Europe and China presents itself as cash-rich?
When I was first based in Europe in the 90s there was still a lot of protectionism. During the past 10 to 15 years, the mindset in Europe has shifted away from the belief that domestic solutions are the best way to protect national interests. European companies and politicians are less sensitive now and more receptive to bids when the deal makes financial sense and offers good value. In the US, there is clearly more sensitivity towards deals that could have an impact on national security. It is relatively open, but not to the same extent as Europe. However, the Chinese are mindful of these sensitivities and are much more careful. Although, this hasn’t deterred them and they are always open to the right opportunities, not just in the US but opportunities globally as well.
As for inbound M&A, will we see more deals (think Diageo’s $2 billion bid for a 53% stake in India’s United Spirits and FrieslandCampina investing in the Philippines’ Alaska Milk) where Western companies are looking to take advantage of the Asia growth story?
Most definitely. The stronger players in the West who are cash rich will look to Asia to take advantage of the long-term growth story there. However, Asian companies are in expansion mode and are not necessarily willing to sell. Now Western players are not only competing with each other but also cash-rich companies within Asia. Valuations have rationalised and there will be selective opportunities but it won’t be easy.
Will 2013 see a marked increase in inter-Asia M&A?
Certain stronger players with piles of cash will look at opportunities in their neighbourhood markets but it will be much more competitive to buy desirable assets. Many people are still looking at how they can penetrate the big markets. China is a huge market with long-term growth potential and Asian companies looking to expand will want to establish a physical presence. However, there are still many barriers to entry with limits on majority stakes.
Liberalisation is slowly happening and we are closely watching the new leadership to see what actions they take. If there is further relaxation of domestic regulation, I think you will see increased activity, especially if you can take control of a 50% stake or more.
In late 2011 / early 2012, Japan was on an acquisition spree in Asia. Might that return?
Corporate appetite in Japan is strong especially for opportunities in Asia where they already have physical subsidiaries or operations and will look to make bolt-on acquisitions. One good example of this was when Nomura advised Itochu Corp in its acquisition of Dole Food’s Asian businesses earlier this year. The acquisition was a good fit for Itochu’s existing food business as well as allowing it to broaden its reach into Asia. I expect a steady flow of smaller deals around the $500 million mark.
Interest in Europe has been more muted but I expect that once the euro situation stabilises, activity should pick up. There is also evidence of continued interest in the US. For example we recently advised Toyota Industries on its acquisition of Cascade Corp, a US-based lift truck parts maker. This added a complementary unit to Toyota’s key material handling business while also broadening its global customer base.
What sectors do you forecast will be hot next year? Where might activity cool?
Changing regulations and difficult market situations mean we expect to see more consolidation in Europe particularly for banks and insurance companies. Many firms are reviewing their strategy and banks are facing increased pressure from regulatory boards. The idea that the universal banking model was the only model for success is unravelling. People are focusing on risk and conflict within their own businesses and this may spark some players to sell off non-core assets. Elsewhere, natural resources will remain hot with greater diversification into the industrials sector. I also anticipate increased activity in food and beverage, technology and distribution. Closer to home, we are already starting to fulfil our goal of further integration between Asia and Japan. We are leveraging our Japan platform to expand into Asia and using our strong coverage relationships in the US and Europe to connect Asian clients to the rest of the world.