Terrie's Take 566 -- High-priced M&A for Doctor Net, e-biz news from Japan
terrie at mailman.japaninc.com
terrie at mailman.japaninc.com
Sun May 23 21:03:19 JST 2010
* * * * * * * * * T E R R I E 'S T A K E * * * * * * *
A weekly roundup of news & information from Terrie Lloyd.
General Edition Sunday, May 23, 2010 Issue No. 566
- What's New
- Candidate Roundup/Vacancies
- Upcoming Events
- News Credits
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+++ WHAT'S NEW
Last week a leading manufacturer of photo processing
machines, Noritsu Koki, announced that it would buy out the
operations of a Tochigi-based telemedicine company called
Doctor NET (www.doctor-net.co.jp) for the surprisingly high
price of JPY5bn (US$55m). Certainly not the megabucks that
Internet companies in the USA spend to buy each other out,
but still an excellent price for a home-grown business with
sales of just JPY2.1bn (US$23m) and net profit of an even
more modest JPY195m (US$2.145m), oh, and assets of around
JPY900m. The founder and president of Doctor Net would have
been particularly happy with the opportunity to see the
payment for his 45.4% which Noritsu Koki will buy next
month. The remainder is held by savvy investor firms
SoftBank Investment Holdings and Mitsui, amongst others, and
will be purchased later.
Whenever we hear about deals like this in Japan, we always
get interested, because the numbers are so out of keeping
with what's normal. In this case, a valuation of almost 20
times the earnings (and after removing the value of stated
assets) is as high as or even higher than what Doctor Net
would have received for a public listing in the current
market environment, BUT without the costs of doing an IPO.
If Doctor Net's profits were increasing prodigiously we'd
see the point, but here is a company that has had the same
10% profit margin for the last two years.
So what does Doctor Net do that makes it worth so much
money? Firstly it operates a remote analysis, diagnostics,
and image storage/management business, that makes it
possible for hospitals and physicians to get their x-rays
and MRI/CT scans processed and reviewed at a remote
location and if needed can have them diagnosed by one of
Doctor Net's many contracted radiologists. Secondly,
because the turnaround is so much quicker, client hospitals
can process more patients and make more money. In fact, in
this age of cost cutting due to the Japanese government's
continuing cutbacks, Doctor net helps radiology departments
actually increase their income.
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As a result of this value proposition, a most compelling
one in our view, the company's sales rose a strong 30% in
FY2009 over FY2008. Noritsu Koki says that they will
figure out a way to tie in their photo processing machines
to the Doctor Net services -- but this is unlikely to
happen because typically Doctor Net allows clinics to have
less equipment, not more.
Rather, the real value, which Noritsu Koki has also said
is there, is in the fact that this highly proven and valued
radiology expertise consolidation system is ideal for
developing countries such as China and SE Asia, and can be
grafted on to Noritsu Koki's distributor network. That is
to say, Doctor Net is most likely a backdoor escape for
Noritsu Koki from a rapidly declining market in image
processing -- just like Fuji Film has been forced to pursue
alternative business by buying out pharmaceutical
Indeed, if you look at Noritsu Koki's P&L over the last 3
years, the picture for their legacy business of photo
processing machines is really ugly and getting uglier by
the day. In the parent company only, FY2007 sales were
JPY37bn and pretax profit was JPY1.4bn, then in FY2008 the
sales fell 30% to JPY27bn and losses soared to 2.5bn.
Most recently, this March the FY2009 results were sales of
just JPY1.9bn, 30% down again, and losses of a massive
JPY4.9bn! These guys don't have much time to turn their
ship around before they will run out of cash. So it's easy
to see how they are clutching at the Doctor Net straw.
Only time will tell if Doctor Net will actually save
Noritsu Koki. Our bet is it won't because Noritsu Koki
appears to have the same problems as Fuji Film has had, but
has taken 5 long years more to do something about it. While
Doctor Net's remote medical support business on the face of
it seems quite sound and there are 131 contracted
radiologists on the network helping over 199 medical
facilities to reduce costs, nonetheless, the profits are just
10% AND the company has actually been grinding away since
1995 (when operations started, the firm itself wasn't set
up until 2002), so it seems that it has only recently
started to hit its stride.
Because Doctor Net is private, we can't tell if their
profit curve is going up or is constant, but at least for
the FY2008 year, on sales of of JPY1.6bn the net profit
was JPY168m, still around 10% -- so this is not a
tremendously lucrative business. Nonetheless, the recent
financial downturn appears to have been a big catalyst for
hospitals to turn to Doctor Net, so maybe their time has
come. The question is: will Noritsu Koki's international
network allow it to translate the service into business
in other countries, and more importantly, can it do this
Noritsu Koki's shareholders seem to think it's a good move
and the stock price rose a bit on the news. But our take
is that where an extraordinary price is being paid by a
company that just recently fired its CEO, there is either
some shenanigans going on or they are really desperate.
In other words, where there is smoke there is fire. We
think investors will get their fingers burned.
...The information janitors/
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- Rakuten buys Buy.com
- Filipino numbers
- 114,000 animals to be culled in Miyazaki
- FY2008 household income lowest in 20 years
- Cosmetic sales down
-> Rakuten buys Buy.com
Rakuten is taking on the big boys in the USA with its
purchase this last week of ecommerce firm Buy.com for a
reported US$250m in cash. In making the purchase, Rakuten
will be taking on Amazon, eBay, and Walmart in competing
for online customers. ***Ed: Given that Buy.com is only a
minor player with 14m registered users, one wonders if
Rakuten is up to the challenge of turning the company
around and significantly growing its market share? Rakuten
says it will use the Buy.com site to implement it's own
two-layer business model of both individuals and companies
being able to offer products for sale online, versus
Buy.com offering only corporate products. We wonder if
buyers have the same mindset when they purchase? Somehow
we doubt it.** (Source: TT commentary from
edlconsulting.com, May 21, 2010)
-> Filipino numbers
An interesting article from a Filipino publisher shows that
the downturn in the economy coupled with changed
immigration rules some years ago has significantly reduced
the number of Filipinos living and staying in Japan. It
points out for example that changes in immigration rules in
2005, primarily limiting the number of entertainers who
could enter the country, has resulted in Filipino NEW
entrants to Japan dropping from 42,633 that year to 8,867
in 2007, and just 6,555 in 2008. As a result, the number of
permanent residents entering Japan in 2009 were 5,278
people, well down from the 8,806 people in 2007, and of
these, the number of Filipinos to marry Japanese were 4,142
in 2008, down from 6,114 in 2007. ***Ed: We can see all
kind of implications here, not least of which is that
Japan's birthrate certainly won't be helped by the fall in
international marriages.** (Source: TT commentary from
abs-cbnnews.com, May 22, 2010)
-> 114,000 animals to be culled in Miyazaki
Japan's wagu beef industry is facing a catastrophe as it
has emerged that some of the nation's top breeding animals
will be amongst the 114,000 cattle and pigs that will be
killed to eradicate an outbreak of foot-and-mouth disease
in the prefecture. Foot-and-mouth is extremely contagious
and appears to be rapidly spreading through the area on the
feet of visitors and locals. The government has declared a
state of emergency for Miyazaki and says that 126 farms are
affected and these will lose all of their animals to the
cull. ***Ed: No word yet as to whether the meat will be
resold to consumers but there was discussion about it!!!
OK, foot-and-mouth is apparently not harmful to humans, but
would you eat an infected animal? Thought not.** (Source:
TT commentary from yomiuri.co.jp, May 19, 2010)
-> FY2008 household income lowest in 20 years
Government statistics take a while to move through the
system, and the Ministry of Labor has just released the
results of a 2009 income survey it conducted to assess
household incomes for the previous year (fiscal 2008). The
survey found that the average household income fell to
JPY5.47m (US$60K), well down from the peak of JPY6.64m back
in 1994, and in fact the lowest level since 1988.
Seniors-only household income was JPY2.97m, and for
households with children it was JPY6.88m. The number of
workers per household fell to 1.31 people, meaning that
moms have been having trouble finding work and that the
primary breadwinner is earning an average of JPY4.17m.
58.1% of households said that life was getting "tough" and
24.9% said it was "extremely tough". (Source: TT
commentary from nikkei.com, May 21, 2010)
-> Cosmetic sales down
You know that things are difficult for consumers in Japan
when women start cutting back on cosmetics. The Ministry
of Economy, Trade, and Industry (METI) has announced that
domestic shipments of cosmetics fell 8% on the year to
JPY1.4trn (US$15.4bn) in 2009. Perfumes and high-end
products were hardest hit, and the industry trend appears
to be for women to be buying cheaper products and looking
after the basics (skin-care product sales were less
affected). ***Ed: Much like clothing, the cosmetics
industry is ready for a high-quality, high-volume, low-cost
retailer like Uniqlo to move in and take over. While there
have been some attempts, the value proposition just hasn't
been compelling enough and the retail store experience has
been missing -- cosmetics makers don't seem to like running
their own stores. But we're sure that will change over the
next year or two.** (Source: TT commentary from nikkei.com,
May 20, 2010)
NOTE: Broken links
Many online news sources remove their articles after just a
few days of posting them, thus breaking our links -- we
apologize for the inconvenience.
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+++ CANDIDATE ROUND UP/VACANCIES
=> BiOS, a Division of the LINC Media group, is actively
marketing the following positions for customers setting up
or expanding in Japan, as well as other employers of
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BiOS is currently looking for an experienced coordination
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applicant will have a cool head in stressful situations, a
farsighted outlook that extends past their desk and today,
and the desire to work in the fast-paced and exciting
environment of the worlds biggest IT services vendors.
Remuneration is JPY5m – JPY7m depending on your experience
** POSITIONS VACANT
- Jnr Sales Rep, Plastics Manuf, Ebina, JPY4m – JPY6m
- Lvl 1 Hardware Support, Global Vendor, JPY3m – JPY4.5m
- Data Centre Contact Rep, Global Vendor JPY3m – JPY4m
- FileNet Architect, European Insurance co., JPY6m – JPY7.5m
- Unix Engineer, Okinawa I-Bank, JPY4m – JPY5m
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+++ UPCOMING EVENTS/ANNOUNCEMENTS
Surprisingly, no events to report this week!
In this section we run comments and corrections submitted
by readers. We encourage you to spot our mistakes and
amplify our points, by email, to editors at terrie.com.
*** In TT-563, April 27th, we tried to figure out what is
going on in the Carbon Trading game globally, given that
the Japanese are still very gungho in buying up carbon
credits, even as Australia has pulled back and put off
setting up an ETS (a carbon credit trading system).
I am concerned there will be a monopoly on carbon emission
rights, purchased by the first world (i.e. buying the
rights from the third world). The current trend will likely
give the third world a massive short term cash flow
injection but the transfer of rights will prevent them from
expanding economically via a path of industrialization. I
doubt new technologies will be introduced at a pace much
faster than they currently are. Although there will be much
fanfare and promotion of new technologies, price and
implementation will be cost and time intensive.
As a result, this will all probably lead to preservation of
the current world economic order as it is today for quite
some time if implemented.
FYI, check these interesting links about the whole global
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+++ ABOUT US
Written by: Terrie Lloyd (terrie.lloyd at japaninc.com)
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