Japan M&A: opportunities for Australia

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5 February

The recent victory of the Liberal Democratic Party in Japan’s lower house elections means Shinzo Abe will become one of the longest serving prime ministers in Japan’s postwar history. It is certain that ‘Abenomics’, the economic doctrine of the Abe Government, is set to continue.

Despite media debate over the long-term benefits of Abenomics and its economic reform effectiveness, it is hard to refute the evidence that Japan’s economy is on the move:

  • On October 24 2017, the Nikkei 225 (Nikkei index) rose to more than 21,850.17 – its highest level in more than 21 years.
  • Unemployment is at an all-time low. It fell to 2.8 per cent (as at February 2017), making it one of the lowest in any of the OECD economies.
  • In the last 12 months, Japanese corporate profits have risen to record levels, on the back of higher resource prices and a depreciating yen.
  • Japanese companies on the Nikkei 225 currently have cash reserves of US$1.9 trillion and retained earnings of more than US$3.9 trillion (as September 2017).
  • Global mergers and acquisitions by Japanese companies in 2016 reached almost US$100 billion – the largest amount since the Global Financial Crisis. The last three years have seen some of the largest acquisitions by Japanese companies including:
    • Suntory’s takeover of Jim Beam Group for US$16 billion in 2014
    • Tsuneo Kita’s takeover of the Financial Times Group for US$1.3 billion in 2015
    • SoftBank Group’s takeover of UK semiconductor and software design company, ARM Holdings, for US$32 billion – the single largest UK acquisition in recent times.

What does this mean for Australia?

With limited market growth in Japan, Japanese companies are looking to diversity their investments. Japanese investment in Australia has quadrupled in the last 10 years. The country’s cumulative investment into Australia now reaches US$91 billion – they’re our second largest investor after the US and ahead of the UK. Japan also remains our second largest export market – 2016 saw export sales exceed A$38 billion and two-way trade jump to A$61 billion.

The Japan-Australia economic relationship continues to be an interdependent powerhouse for both economies. Japan’s interest in mergers and acquisitions, particularly in the services sector, has shown strong growth in Australia over the last three years. We have seen a diverse range of acquisitions, including:

  • Japan Post’s acquisition of Toll Group for US$6 billion 
  • Recruit-People Bank’s acquisition of Chandler and Macleod for US$400 million
  • Hitachi Construction’s acquisition of Bradken Limited for US$690 million
  • Persol Holdings acquisition of Perth-based Programmed Maintenance Services for US$790 million.

The last 60 years has seen Japan’s familiarity with the Australian market grow. Japanese investors are attracted to Australia’s stable transparent institutions, well-developed regulatory frameworks and openness to foreign investment. This presents a significant opportunity for Australia if we can get post-merger integration right.

Two recently released reports by Austrade and PwC Australia provide insights to assist with unlocking Japan’s potential.

To celebrate the significant and developing relationship between Australia and Japan, and mark the anniversary of the 1957 Australia-Japan Agreement on Commerce, Austrade released an investment report, Japanese Investment in Australia – a trusted partnership. Outlining the history, importance and enduring contribution to Australia’s economic prosperity, the report charts major investments and reinvestments in traditional sectors such as minerals, energy and agribusiness. It also highlights growth opportunities in medtech, services and renewable energy sectors.

PwC Australia also released a report, Unlocking Japan’s Potential, examining post-merger integration and ways to extract greater value from these increasingly common transactions. Interviews with CEOs of leading Japanese multinational companies have helped PwC pinpoint some of the biggest cultural challenges relating to either acquiring or operating subsidiaries abroad.

For Austrade’s report visit: austrade.gov.au/japaneseinvestment

For PwC Australia’s report visit: pwc.com.au/publications/pdf/unlocking-japans-potential.pdf

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Rachel Mulholland
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