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Japanese M&A seekers ignore the impact of the currency in their desperate search for growth

Image: Reuters Berita 24 English -  The yen's decline to 24-year lows hasn't hindered Japan's pursuit of foreign acquisitions si...

Image: Reuters

Berita 24 English -  The yen's decline to 24-year lows hasn't hindered Japan's pursuit of foreign acquisitions since potential buyers are determined to counterbalance bleak domestic growth forecasts and create new revenue streams, according to investment bankers.

The yen's 15% loss versus the dollar this year will make Japanese companies' purchases abroad more expensive, but bankers have been busier than last year with healthy deal pipelines.

As suitors are now able to visit and evaluate targets' assets, the bankers claimed that Japan's relaxation of travel restrictions brought on by the epidemic has also released dormant demand for export acquisitions.

Prior to the implementation of COVID-19, M&As abroad were the primary driver of growth in Japanese dealmaking. This made site inspections and in-person meetings more difficult.

According to Refinitiv statistics, outbound agreements peaked at 947 in 2019, more than 6 times as many as incoming deals, before waning to 693 in 2020 and 731 in 2021.

The statistics indicated that the number fell 3% year over year to 334 in the first half of 2022, but bankers say there are indicators that momentum would pick up again in the second half.

Koichiro Doi, head of Japan M&A at JPMorgan, noted that a weak yen has an effect since it boosts the financing requirements and increases the cost of an overseas deal.

"However, purchasing a US company entails purchasing future dollar-denominated cash flows. It's primarily a trade in analogues."

Chesmar Homes LLC, a Texas-based homebuilder, will be purchased by Sekisui House Ltd for roughly $514 million last month. Despite the weak yen, Sekisui, based near Osaka, expects U.S. sales to help repay the investment early.

Additionally, Sapporo Holdings Ltd. disclosed last month that it had acquired Stone Brewing, a boutique brewer based in California, for $168 million. Our long-term objective was to establish manufacturing facilities in emerging markets, a spokeswoman said.

Bankers have observed interest in outbound M&A across a wide range of industries, including manufacturing and finance, and in far-off places like Southeast Asia and the United States.

According to Shinsuke Tsunoda, senior managing director of Nomura Securities, companies' only options for growth are to restructure their operations domestically or to go global.

A weak yen is not a hindrance for such enterprises because overseas ventures are "must-haves," according to Tsunoda.

According to him, business environment changes that complicate corporate strategy and make it more difficult to evaluate possible acquisition targets, such as rising material and energy costs or supply chain disruption, would likely be of more concern to purchasers.

According to Refinitiv data, the value of announced M&A agreements decreased by 21% globally in the first half of the year to $2.2 trillion, as a result of rampant inflation, recessionary fears, and rising loan costs.

The inability to obtain more affordable financing as a result may force the sell side to seek out wealthy Japanese purchasers.

Sellers may need to extend their focus to include international investors since a deal frenzy in the previous two years in the United States and Europe has subsided, according to Koki Kaita, head of Daiwa Securities' M&A team for industrials.

That might be advantageous for Japanese businesses, Kaita added.

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