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Business Deals

Want to buy a company? Prices are skyrocketing

Chinese companies becoming less active acquirers amid trade friction

Japan's SoftBank Group recently paid $7.7 billion to become the top shareholder of Uber Technologies, whose chief operating officer, Barney Harford, is seen here at a news conference in New Delhi on April 18.   © Reuters

TOKYO -- Corporate acquisition prices are rising as tech companies with strong growth potential ripen, beckoning deep-pocketed investment funds.

According to a U.S. research company, 11,738 acquisitions took place globally in the January-March quarter. That is down 769 from a year earlier, but the combined acquisition payouts jumped 64% to $1.24 trillion. Some acquisitions cost north of $10 billion.

And some appear to be overvalued. The enterprise value per earnings before interest and taxes, or EV/EBIT ratio, compares the purchase price with annual earnings from core operations. It was 19 in the January-March quarter, up from 18 a year earlier and from 12.1 in the January-March quarter of 2009, after the global financial crisis struck.

Tech companies' EV/EBIT of 21.3 is higher than the average and up 9.7 percentage points from 2009. The acquisition of Microsemi by midsize U.S. chipmaker Microchip Technology showed a ratio of 29.7.

Purchase prices in the semiconductor industry got a big lift after Singapore-based chipmaker Broadcom in November launched a $130 billion bid for U.S. peer Qualcomm.

The ratio is particularly high in the artificial intelligence and other high-growth-potential sectors. Swiss software company Temenos Group proposed an acquisition price for British rival Fidessa that represented an EV/EBIT of 91.

Low interest rates have made it difficult for investment funds to turn profits. As a result, these funds are going on corporate acquisition safaris.

On the other hand, some Chinese companies, whose ample funds had boosted global acquisition prices, have been staying home. Overseas acquisitions by Chinese companies stood at $13 billion in the January-March quarter, down 4% from a year earlier. This represents a nearly 80% decline from the recent peak of 2016. Furthermore, Chinese companies' U.S. acquisitions have been subdued due to trade friction between the two countries.

In Japan, SoftBank Group is on a buying spree. In December, the telecom group spent $7.7 billion to become the largest shareholder of U.S. ride-hailing company Uber Technologies. In March, the Japanese company also bought a stake in U.S. food delivery company DoorDash.

Other Japanese companies have been aggressive on the acquisition front. Takeda Pharmaceutical is negotiating to buy Irish drugmaker Shire. If a deal materializes, the takeover price would be a record for a Japanese company, about 6.7 trillion yen ($62.2 billion).

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