Terrie's Take 704 -- Why Do Deals Get Done in March? E-biz news from Japan.

Terrie's Take terrie at mailman.japaninc.com
Sun Mar 31 23:14:34 JST 2013

* * * * * * * * * T E R R I E 'S T A K E * * * * * * *
A weekly roundup of news & information from Terrie Lloyd.

General Edition Sunday, Mar 31, 2013, Issue No. 704


- What's New -- Why Do Deals Get Done in March?
- News -- Japan's got talent
- Upcoming Events
- Corrections/Feedback -- Ukraine non-GMO beans safe?
- Travel Picks -- Spiritual Mt. in Yamagata, Onsen in Kochi
- News Credits

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One thing that has always struck us as unusual about Japanese investment
and M&A is that most companies thinking of doing a domestic deal often want
to have the transaction happen between January and March 31st -- the last
quarter of the financial year for most companies. We find this strange
because both M&A and external investment are not regularly recurring
business activities, instead usually being opportunistic (founders of
target companies dying, small firms with suddenly popular technology,
etc.). So why are they so based on the financial cycle here in Japan?

Our take is that M&A and external investments are seen as non-core
activities and so equate to other "indirect" corporate activities, such as
entertainment, overseas education, and community good works, and are given
a "bucket-type" allocation each year. So it is that each April a fresh
chunk of cash is set aside from last year's profits for M&A and external
investments, in an amount that is considered OK to lose if the opportunity
doesn't work out.

Thus we see major Japanese companies budgeting amounts ranging from mere
millions of yen (private second-tier companies) to a more chunky JPY5bn
(public first-tier players) -- but all with the common element that if the
sums are not used, the money is returned to corporate treasury and everyone
starts with a fresh slate the following year.

One of the effects of this ebb-and-flow approach to funds is that the
corporate planning teams in each company's Shacho-shitsu (President's
office) spend most of the year window shopping, and only look to pull the
trigger after they've seen everything that is available for that given
fiscal year. Come the last quarter, the best opportunities are hopefully
still available, and then it's all hands to the deck to make the buy (or
investment). This herd-like mentality can create lots of competition
between companies for attractive targets and helps to push prices up -- but
no one seems to mind.

[Continued below...]

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[...Article continues]

Actually, while we think of it, there is one other "popular" time for
Japanese companies to execute M&As, and that is in July. This is because
some older style companies insist on pushing all deals in excruciating
detail past their board of directors. Needless to say, they don't get many
deals done, and mostly the corporate planning staff have their time wasted.

Smart companies avoid the log jam by a process of trust. Junior staff may
well find the opportunities, but it is senior managers who are expected to
promote/champion a deal to the board. We have been told by several major
firms that any deals priced at JPY100m or less can be pre-approved by a
bucho/hon-bucho (Division Chief), with that person being able to
subsequently expect an almost automatic approval of the deal by the board.
The reason is that of course as the promoter of the deal, that bucho is
then on the hook to make sure the deal is successful.

More than JPY100m and the deal needs to be promoted by an actual board
member and proper due diligence done at senior level. These days, even "one
man" company CEOs, who in the past would have made buying decisions on
their own, now seek the support of their board before launching out on a
purchase. In most private companies this means that deals only get vetted
once a month (the frequency of board meetings) and if there are questions
then the deal will get put back some months while that extra information is
being collected and re-floated for the next board agenda. So it's not
normally a quick process.

But then you have internet companies...

In the USA, we see the big players on the Internet: Yahoo, Google,
Facebook, and others, investing in and buying out targets every day of the
week. It's the American dream come true for smaller entrepreneurs who have
had a good idea and a strong 3-5 year run powered with venture capital as
rocket fuel. One player that is particularly interesting for its
determination to build an internet business by acquisition is Oracle. Take
a look at this page:
http://www.oracle.com/us/corporate/acquisitions/index.html, and you will
see that the company has spent billions just on buying six internet
applications companies in 2012 alone. Very interesting stuff.

Japan is just a shadow of the volumes and values in the USA, but
nonetheless we still have a healthy smattering of active acquirers and
investors. Among these are Yahoo Japan, Rakuten, Softbank, DeNA, Gree, Opt,
NHN, and others. Per our theory, since it's Q4 in this financial year, sure
enough there are plenty of deals being announced. We see most of the action
being focused on web-based marketplace and crowdsourcing operators.

One deal that caught our attention, because it is closely related to the
foreign market and foreign vendors, is a new Yahoo Japan effort by
subsidiary Indival. Apparently Indival has teamed with an unnamed foreign
educational player to provide market matching for bilingual Japanese
looking for postings abroad or jobs with foreign firms. The site charges a
sign-up fee, then a reasonable JPY100,000/month. Where they make their
money is if a successful hiring introduction is made. The charge is then
JPY500K-JPY1MM per placement -- still a lot cheaper than using traditional

Actually, this new service seems to be a bit of a knee-jerk reaction
(another hall mark of Japanese investments) to a fresh competitor on the
jobs placement website market, Livesense. You may have heard of Livesense
because not only is the company public at only 6 years old, but its CEO is
also the youngest president on the Tokyo stock exchange (he's just 26).
Livesense also runs a job site, but it's the pricing model that has hooked
customers. They only charge customers when they actually hire an employee,
asking for 10% of the first year's salary. No one minds paying when their
search is successful, and as a result, Livesense's sales have risen 400% in
the last 3 years. Yahoo should be taking note -- we feel Indival's pricing
is a little bit too rich and too similar to existing players to really
stand out.

More interesting perhaps are those deals that remind you that Japan's
traditional companies are still following the action and doing their bit at
this time of the year. One such deal last week involved Tokyu Hands buying
out a crowdsourcing website run by Opt Inc., called Dan-Te (http://dan-te.jp).
The site is a marketplace for artists and others offering unique handmade
goods to shoppers online. It is highly popular -- although we were
surprised to find the main site is down tonight, with a message that they
are redoing the website with new terms and conditions -- presumably to
satisfy the risk requirements of Tokyu Hands.

Anyway, the message here is that it's not just the cherry blossoms that
bloom in March. If you are an entrepreneur looking to sell your business,
then the time to approach Japanese majors is in the second half of each
year, allowing them time to decide, and to get their top people bought in
before January rolls around. Then, with a bit of luck, you should get your
deal done by March.

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+++ NEWS

- Yahoo Japan-NHN social search alliance
- Cerberus play on Seibu to be prevented?
- Google Street View maps Namie, Fukushima
- NEC may sell phone business to Lenovo
- Japan's got talent

=> Yahoo Japan-NHN social search alliance

One thing you can give Yahoo Japan credit for, they move quickly and
decisively when they see a technology or an idea they like. The maker of
the phenomenally popular LINE social posting software, NHN, has just formed
a search alliance with Yahoo Japan to bring Yahoo users socially-weighted
search functionality. What this means is that instead of getting just
globally high-ranking search results, the user instead gets more results
from those that they know, but whose content is still related to the search
term. ***Ed: This could really catch on, so long as you have friends
willing to create content...** (Source: TT commentary from e.nikkei.com,
Mar 29, 2013)


=> Cerberus play on Seibu to be prevented?

In a press conference on Friday, the president of JR Tokai, who has been
appointed to a special panel within Seibu Holdings, said that the
government could introduce restrictions on the amount of shares that a
foreign company can hold in Japanese rail companies. His announcement came
as Seibu is trying to block Cerberus from gaining ability to veto board
decisions (1/3 majority). When asked, the JR president denied that he was
trying to protect Seibu. ***Ed: Ummm, what else would his statement be
trying to do?** (Source: TT commentary from e.nikkei.com, Mar 30, 2013)


=> Google Street View maps Namie, Fukushima

One of the towns inside the exclusion area around the devastated Fukushima
Daiichi power plant, Namie, has been mapped by Google Street View, at the
request of the mayor. The town that used to have 21,000 people but is now
deserted. The images are quite amazing and show what the planet would look
like after two years if all the humans died. Namie will be off limits for
decades, until the radiation levels in the area recede. (Source: TT
commentary from guardian.co.uk, Mar 27, 2013)

http://bit.ly/16o3a2U (link to google images)
http://bit.ly/11YNFQ7 (link to article)

=> NEC may sell phone business to Lenovo

In a sign of the times in the cell phone business, NEC appears to be
getting ready to sell its mobile phone business to China's Lenovo for an
undisclosed sum. NEC will now only sell 4.3m cell phones this fiscal year,
down 15% from the 5m target set a year earlier. The company is also said to
be selling its mobile services subsidiary, NEC Mobiling, for US$850m, to
Japanese firms. ***Ed: We did business with NEC's cell phone business
frequently about 10 years ago, and always got the feeling that the company
wasn't comfortable with consumer products. The company's roots are in
telecomms infrastructure.** (Source: TT commentary from yahoo.com, Mar 30,


=> Japan's got talent

Don't rile Japanese old folks, they're likely to bite back, as an NHK TV
talent show found out recently. The show rejected a postcard application
from a 70-year old pensioner trying to get on a Karaoke show, and he was so
offended that they didn't even invite him in for an audition, that he
phoned in a bomb threat to the station. The man was arrested in Niigata
after his call ID number appeared on the NHK staffer's phone... ***Ed: What
can we say?** (Source: TT commentary from telegraph.co.uk, Mar 29, 2013)


NOTE: Broken links
Some 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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following positions for customers setting up or expanding in Japan, as well
as other employers of bilinguals.


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Details: Complete event details at http://www.icajapan.jp/
Date: Thursday, April 25, 2013
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Venue is The Foreign Correspondents' Club of Japan,

---------------- Start a Company in Japan -----------------

Entrepreneur's Handbook Seminar 25th of May, 2013

If you have been considering setting up your own company, find out what it
takes to make it successful. Terrie Lloyd, founder of over 17 start-up
companies in Japan, will be giving an English-language seminar and Q&A on
starting up a company in Japan.

This is an ideal opportunity to find out what is involved, and to ask
specific questions that are not normally answered in business books. All
materials are in English and are Japan-focused.

For more details: http://www.japaninc.com/entrepreneur_handbook_seminar



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.

=> No corrections this week.



=> The Ishioka Festival, Ibaraki
Local color and hundreds of years of history

One of the three biggest festivals in Eastern Japan is held every year
during September in the city of Ishioka, Ibaraki Prefecture. Usually
spanning the Friday, Saturday and Sunday of a long weekend, the festival
fills those three days and nights with revelry and history, celebrating a
tradition older than most countries.

I was lucky enough to be offered the chance to attend one day of the
festival, and was even more fortunate to have a former local as my guide.
Mr. Nakajima kindly took time out of his busy weekend schedule to give us a
tour of the city’s historic sites, blending historical facts with personal
reminiscences to flesh out the sights, and helped provide an insider’s
viewpoint on the festivities.


=> Mountain Festival, Daisetsuzan, Hokkaido
Ainu dance rituals and traditions

I only knew about this festival because the owner of the mountain lodge
Nutapukashipe told me about it when I made my reservation. She said we
should try to arrive in the late afternoon, so that we could have an early
dinner and visit the festival, which would take place just across the road.
I didn’t really know what kind of festival it should be; however, I was
very happy to apparently have chosen a good time to go to Asahidake Onsen.

The festival turned out to be an annual event, which is held every year in
the middle of June to celebrate the official start of the hiking season.
It’s seen as a ritual where local people and visitors pray to the god of
the mountain for the safety of the climbers. ‘Perfect for us’ I thought, as
we had indeed planned to go hiking the next day. It was so different from
other Japanese events, as a great part was about presenting and remembering
the culture and traditions of the indigenous people in Hokkaido, called




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Written by: Terrie Lloyd (terrie.lloyd at japaninc.com)

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