Global M&A Surge: Confidence in Future of Japan’s Economy?

A recent article for Reuters has highlighted the surge in Japanese companies’ global M&A deals. If the proposed deal for Softbank to purchase Sprint Nextel Corp for $20 Billion is completed, Japanese companies will set a record for outbound acquisitions this year ($75 billion). Japanese firms have announced 14 outbound transactions worth at least $2 Billion each, which totals 5 more than the previous year.

From an economic paper by Arikawa Yasuhiro and Miyajima Hideaki (link below), they describe the causes and parallels for a mature economy to undergo a surge in M&A activity. They conclude that industries with higher growth opportunity are likely to engage in more M&A activity, but that the same is also true for industries facing negative fundamental shocks like sales declines.

Is this aggressive growth an indicator that Japanese CEO’s are becoming more confident in the future of the Japanese economy or is it the result of less confidence in domestic growth potential?


3 thoughts on “Global M&A Surge: Confidence in Future of Japan’s Economy?

  1. kuveke

    Interesting article, especially in the wake of reading Shoshaman. It seems to be a risky strategy for CEO Masayoshi Son especially given Sprint’s position in the U.S market. The market for cell phones is largely stable and growth will only come from stealing Verizon and AT&T customers. Independent telecoms consultants don’t see how this will be a game changer. For such an expensive purchase it is unclear if Masayoshi has some sort of plan to grow Sprint aside from helping it pay off much of its debt and acquire wireless spectrums that are needed. The acquisition by Softbank seems to reflect more of a gamble in the face of a lagging home market than a confidence in Japan.

    1. savas

      I liked how you related our Shoshaman novel to this topic. I found that the Yasuhiro and Hideaki paper gives a good, new explanation for the increase in M&A deals in Japan. Before reading the paper, I ignored how negative shocks in the economy lead to an increase in M&A deals. However, it now make sense. If a company is struggling, completing a M&A deal will help stabilize the company, and possible lead to growth. Looking back to our Shoshaman reading, the economy is facing a “shosha winter” and Nissei Corporation acquires American Gourmet Company in order to help itself. I liked the original post and how it related to our discussion of Shoshaman.

  2. the prof

    Another version of the same issue: this is #3 acquiring #3, whether neither firm has much growth prospect but where fixed costs get amortized and so if they can hold market share etc etc they can be quite profitable …. eventually.
    More generally, if you have cash but your domestic market offers few opportunities, then go global. In addition, at the moment the yen is strong so that you have to adopt a Japanese domestic standpoint to ask what the opportunity cost is from the perspective of Softbank. But as in the US, cash under a zero interest rate policy earns nothing. The question you and Dillon raise though is whether they’ll lose money on Sprint. Here’s the opening of the Bloomberg story:

    Softbank Corp. (9984) President Masayoshi Son is betting $20 billion he can add value by buying control of Sprint Nextel Corp. (S) in the biggest Japanese purchase of a foreign company. There’s 26 trillion yen ($330 billion) that says he can’t. That’s the net amount of market value lost within 12 months after deal announcements in the 10 biggest overseas purchases by Japanese companies from 2000 to a year ago. Eight of the companies saw market value erode while two posted gains.

    Found at Softbank’s Son Seeks to Skirt Cross-Border Failure History (Bloomberg has a Japan page, in the Econ 272 Links list ===>)

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