Lixil's president sets sights on more M&As
TOKYO -- Investors are looking at how major Japanese companies plan to use their ample cash reserves. One big business strategy is to spend this money on mergers and acquisitions.
In a recent interview with The Nikkei, Lixil President Yoshiaki Fujimori spoke about the building materials and housing equipment company's large acquisitions this year, future M&A plans in emerging markets and how the future for growth lies outside of Japan.
Excerpts of the interview follow.
Q: Lixil spent over 400 billion yen ($3.9 billion) buying kitchen and bath fixtures maker ASD Americas Holding (parent company of American Standard Brands) and German sanitary fittings maker Grohe Group. What made you decide to make such huge investments?
A: We're done with acquisitions of global brand companies, for now. But in the U.S., the markets for housing reform and new homes are growing. In Europe, the housing market is recovering. Populations in the U.S. and Europe are growing, and I expect the housing markets there will continue to remain strong. Given that, the acquisitions of these two companies have helped us establish a foothold for entering markets in these two regions.
When I became president (in August 2011), our capital adequacy ratio was around 40%. I have always thought we could borrow more from banks until our capital ratio is down to around 30%. In fact, even after we acquired Grohe, the ratio has been around 35%. I think we still have enough capital to carry out some more M&As.
We are lagging behind overseas rivals in terms of the flow of goods and money. We're going to review this and make new investments to revamp the whole system, spanning materials procurement to production, sales and capital recovery. We hope this will allow us to generate about 100 billion yen in cash flow. We can use that money to acquire all the shares in Grohe, which is currently a jointlyowned affiliate accounted for under the equity method.
Q: Will you continue to be aggressive about M&As?
A: We will shift our focus to acquiring small-to-midsized firms that are firmly established in local markets (such as Indian curtain wall company Star Alubuild, which Lixil bought in early October). To generate synergies from acquisitions, we need to reap the benefits from the growth of emerging economies in Asia, Africa and other regions. To that end, we will continue to invest aggressively.
The domestic market will keep shrinking as the population declines. Crowded industries will eventually lose competitiveness, so they should push ahead with industry consolidation.
We can't expect much growth in the domestic market, but we can in overseas markets. M&As in Japan tend to be undertaken for cost reduction. So, it is a tough call to make decisions. If we decided to acquire a Japanese company, it would be the kind of company with which we could cultivate overseas markets together and create synergies. We are considering a wide range of options, including business and capital tie-ups.
Q: There are concerns that there will be a drop in consumer demand after the consumption tax hike next April. Are you worried about that?
A: I don't expect a sharp drop in new housing starts, thanks to government initiatives such as tax breaks for home buyers. That said, the renovations business will take a hit from the rebound.
I suppose such an impact could last through the first half of fiscal 2014 (which begins April). Yet, I think ASD Americas and Grohe will help offset a drop in domestic sales. So, as a whole, we expect to achieve double-digit growth in profits next fiscal year and beyond.
Interviewed by AMI SATO, Nikkei staff writer