Terrie's Take 799 -- Why Japanese M&A Will Continue to Rise. E-biz News from Japan.
terrie at mailman.japaninc.com
Mon Apr 13 00:25:24 JST 2015
* * * * * * * * TERRIE'S TAKE - BY TERRIE LLOYD * * * * * *
A weekly roundup of news & information from Terrie Lloyd, a long-term
technology and media entrepreneur living in Japan.
General Edition Sunday, April 12, 2015, Issue No. 799
- What's New -- Why Japanese M&A Will Continue to Rise
- News -- Perils of Thai LCCs
- Upcoming Events
- Corrections/Feedback -- Where is Changi Airport?
- Travel Picks -- Tofu Sweets in Sendai, Fake Flowers in Tokyo
- News Credits
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+++ WHAT'S NEW
CNBC ran a piece this week about a Goldman Sachs research report stating
that the investment bank expects the level of Japanese M&A both in Japan
and abroad to double in value. The report noted that Japanese major
listed companies in particular are sitting on record amounts of cash and
need to do something with it. We would very much agree with the notion
that Japanese M&A activity will perk up significantly in coming years.
While Goldman Sachs specializes in deal of more than $100m, we are also
seeing many smaller firms in the market who are putting together M&A
discovery teams and actively looking for deals.
Goldman's report says that Japanese firms paid out JPY3.9trn in
takeovers in the first three months of 2015 alone, a massive 76% jump in
activity as compared to last year. Now, to be fair, last year was the
quietest year for Japanese M&A since 2002, and furthermore a big chunk
of the new transaction value was due to Japan Post's rich US$5.1bn
purchase of Australian firm Toll Holdings in February. But nonetheless,
word around town is that international legal offices are hiring more
lawyers, and are burning the midnight oil. It appears that M&A has come
But as a friend commented to us recently, "With the cheap yen, isn't an
increase in M&A abroad counterintuitive?" He brings up a good point that
the right time for Japanese firms to do buy-outs overseas would have
been prior to 2012, when the yen provided them with twice the leverage
that it does today. But then, back in 2012 companies weren't sure if
they could even survive in Japan, because anything they made here was
just too expensive to sell abroad. In contrast, in 2015, exporters are
well past their optimum yen-dollar rate of 100-110. Instead they are now
asking the government to slow down the devaluation schedule.
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So with a high yen, why are Japanese companies on an M&A bend in 2015?
We think there are three main reasons: timing, cheap money, and survival.
Japanese companies have always been slow to change strategies and adjust
to market trends. After a flat period from 2010-2013, international M&A
activity has increased significantly and in 2014 deal volume hit
US$3.6trn, the third highest year ever. This, even as Japanese M&A was
in a relative slump. The sight of more agile international competitors
snapping up smaller innovators and controlling new sectors has finally
registered with Japanese senior managers. They realize that if they
don't join in, they will be outmaneuvered.
2. Cheap money
With the Bank of Japan, the Government Pension Investment Fund,
Development Bank of Japan, and a number of other entities all buying
shares in the stock markets, it is no wonder that the Nikkei index this
week passed 20,000 for the first time since April 2000. This means that
even though the yen has fallen 35% since 2012, the stock market is up by
more than 100% over the same period. Companies can buy assets with those
newly revalued stocks -- a gift from Abenomics. There is also the fact
that Japanese banks no longer buy Japanese Government Bonds because the
Bank of Japan is buying them all, so they need to increase their loan
portfolios. Large companies can get funding for massive M&A deals with
10-year terms at historically low rates...
...And so if you can borrow money at 0.7% or less for 10 years, it means
that any M&A where the target is earning more than 10% gross profit will
not only pay for your acquisition over a 10year worst case scenario, but
if things go well, it will also significantly add to your bottom line
back in Japan as well. In short, it's a money game which really only
comes undone if the target company doesn't perform as expected. This is
why Japanese companies pay so much more than the market price, because
they are trying as hard as they can to not only buy quality but also
management commitment to continue to run the business in the same manner
in the future.
Now, with each acquisition you would think that Japanese head office
would like to import some of the newfound skills and people from their
successful subsidiaries, so that they can pep up the business back home.
But far from it. What they want to import is one thing only -- profits
from the remotely managed operation. This is becoming exceedingly
obvious as you look at the resurgent Current Account surplus. What we
are seeing is a coordinated effort to grow Japanese businesses without
having to change how they do things in Japan. We're not sure if this is
a good or bad trend, but it certainly does remove any need for
restructuring for yet another business cycle.
Lastly, in an M&A a little bit closer to home, Fuji TV-lab, a subsidiary
of Fuji Media Holdings, has purchased a majority share of
foreigner-owned GPlus Media. You may know GPlus as the publisher of the
Japan Today news site, the GaijinPot English teacher forum site, and
several other online properties. The purchase is rumored to be valued
between JPY200m-JPY300m. Fuji says that they will use the Japan Today
publication in particular to expand its overseas operations. We're not
really sure how they think the acquisition will achieve this, but
nonetheless, our congratulations go to the two founders, Erik Gain and
Peter Wilson, for a well-managed earn-out during a difficult period for
foreign media in Japan.
...The information janitors/
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- Perils of Thai LCCs
- UK analysis finds high mercury contamination in whale, dolphin meat
- Court tells Google to remove negative reviews
- Some companies are making a LOT of money -- surplus at 4-year high
- Saitama school kids caught shop-lifting in S. Korea
=> Perils of Thai LCCs
Although flying by the seat of your pants is becoming the new norm for
SE Asian LCCs these days, Japanese aviation authorities were not
impressed when a flight approval application was delivered too late to
be processed properly. As a result, 233 would-be passengers on Asian Air
DM464 charter flight were prevented from flying to Hokkaido last week.
The airline has since compensated the passengers for both canceled
tickets and inconvenience caused. ***Ed: One wonders if the
Japanese-side approval hold-up was really necessary, or perhaps
something more political? Certainly the two big Japanese airlines are
increasingly feeling pressure from the many foreign LCCs "invading"
their shores.** (Source: TT commentary from nationmultimedia.com, Apr
=> UK analysis finds high mercury contamination in whale, dolphin meat
UK-based Environmental Investigation Agency (EIA) has announced that
whale and dolphin meat samples acquired from vendors at Yahoo! Japan and
various supermarkets exceed Japanese safety limits for mercury
contamination by up to 47 times. The EIA bought 13 samples, and found
that a package of pilot whale meat had mercury levels of 19ppm, 47 times
higher than the safe limit of 0.4ppm. A dolphin meat sample also came in
at 11ppm and pilot whale spare ribs at 13ppm. ***Ed: This article also
mentions that even though the folks at Taiji have elevated mercury
levels in their blood and body tissue. Interestingly none of them seem
to be suffering any ill effects. Could it be that the consumption of
wasabi and other sulfur-rich foods are protecting them? Interesting.**
(Source: TT commentary from theguardian.com, Apr 09, 2015)
=> Court tells Google to remove negative reviews
The blogosphere is alive today with criticisms of a ruling by the Chiba
District Court that will force Google to take down critical customer
reviews from a Google Maps site. The court found that the postings were
defamatory towards a medical clinic and a key witness was one of the
doctors who presented an affidavit denying the claims of the two
posters. ***Ed: Bloggers are complaining that Japan is enduring a bout
of news censoring, somehow tying this event to the news that an Asahi TV
program is being targeted for pressure by the government. However, we
believe the bloggers have the wrong end of the stick. The Japanese
courts may not always act justly in the western sense, but they do
nonetheless have a set of rules and they follow these closely. If the
court found the posts to be defamatory, then the implication is that the
posters of those reviews were acting as more than just unhappy
customers. It's easy to forget that malicious internet users can simply
make stuff up -- the internet is not a newspaper that is legally liable
for what it says. We are always reminding our teenage kids of this
fact.** (Source: TT commentary from techcrunch.com, Apr 10 2015)
=> Some companies are making a LOT of money -- surplus at 4-year high
Japan's Current Account surplus was at its highest in 3 1/2 years for
February. The Finance Ministry said that Japan had a JPY1.44trn surplus,
mainly due to cheaper oil costs and a slight increase (0.4%) in exports.
This is the third month of increasing surplus, and the eighth month
overall for a surplus. The bulk of the surplus increase appears to be an
increase in interest income from overseas bonds and other investments,
coupled with the cheaper yen increasing the value of those returns.
(Source: TT commentary from wsj.com, Apr 7, 2015)
=> Saitama school kids caught shop-lifting in S. Korea
In a humiliating (for Japanese teachers and politicians) incident, 22
students from a Saitama high school soccer club have been charged in
South Korea for shoplifting goods at a Seoul shopping mall, to the
value of JPY277,000. The kids were on the last day of a soccer
tournament visit, prior to returning to Japan. They were caught on
security cameras nabbing goods at nine different stores. ***Ed: In a
remarkable turn of events, after the South Korean police decided to
bring charges, the kids, who had already returned home to Saitama, were
forced to go back to Seoul to both return the stolen items and also to
be grilled. No word yet on what their fate will be.** (Source: TT
commentary from japantimes.co.jp, Apr 10, 2015)
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.
+++ UPCOMING EVENTS/ANNOUNCEMENTS
------------------ ICA Event - April 16th -----------------
Speaker: Pierre Gaulis - Founder and CEO of BrandAcademy.co
Title: "Boosting Organizational Knowledge and Sales via Mobile Devices"
Details: Complete event details at http://www.icajapan.jp/
Date: Thursday, April 16th, 2015
Time: 6:30 Doors open, Buffet Dinner included and cash bar
Cost: 4,000 yen (members), 6,000 yen (non-members) Open to all. No sign
ups at the door!!!!!!!
RSVP: By 5pm on Monday 13th April 2015. Venue is The Foreign
Correspondents' Club of Japan
=> Our article in TT-797 last week we mentioned that we had ridden the
train past Changi airport in HK. A number of readers pointed out we must
have been particularly sleepy during the edit phase of the newsletter
(which is true, actually), because Changi is in Singapore! Apologies if
we sent anyone seeking a similar experience on a wild goose chase...!
+++ TRAVEL DESTINATIONS PICKS
=> Senz: Soy and Cafe, Miyagi-ken
Showing that soy is no "has-bean"!
The staple of the Japanese diet is rice, but another of the cuisine's
key features is soy. Immature beans are boiled and eaten with salt as
edamame, mature beans are made into tofu and soy sauce, and fermented
into natto. Senz is a cafe that makes the most of this versatility,
incorporating it into almost everything on the menu. It's only a few
minutes from Itsutsubashi subway station in Sendai City. It was founded
on the conviction that soy has many health benefits, and they only use
high-quality, Japanese beans.
The first thing you notice at Senz are the friendly colors and modern
feel. Above the counter is a bright sign showing a colorful array of
drinks. The cafe might be small, with only a few seats, but it is all
bright colors and healthy food. The drinks come in a wide range and are
all made with soy milk, so they're suitable for vegans and anyone with a
lactose intolerance. I highly recommend the citrus and cinnamon, (¥620)
which seems strange at first, but after a few tastes I couldn't stop
=> Maru-K Kobayashi in Asakusabashi, Tokyo
Artificial flowers from a local craft store
Asakusabashi, which is well known for its wholesale stores and markets,
is located one stop after Akihabara station on the JR Soubu Line. Craft
materials such as beads, stationery, Japanese dolls, party items, as
well as bag and dress shops are lined up along on the main street. I
visited this town for my friend's wedding party, to buy an artificial
flower decoration. Maru-K Kobayashi is a floral design and material shop
which is 5 minutes away from Asakusabashi station on foot. It was
founded in 1947 and its main customers are professional corporations,
shops, and art schools -- testimony to the quality of this store.
You will see colorful ribbons and preserved flowers on the first floor.
The basement has beads, craft paper, and wire which can be used for
arranging artificial flowers. The second floor has lots of artificial
flowers. Another attraction of this shop is its low prices. It is much
cheaper than Tokyu Hands and other craft shops in Japan as it is a
wholesale merchant. Note that they don't offer floral arrangement
services but you will find displays of wedding bouquet and flower
arrangements for purchase. The prices depend on the size and design and
range from 150 Yen to 2,000 Yen.
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+++ ABOUT US
Written by: Terrie Lloyd (terrie.lloyd at japaninc.com)
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