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Business trends

SoftBank and MUFG lead Japan's record global M&A spree

Acquisitions in first half focus on US, China and India, with deal count jumping 30%

SoftBank Group, led by CEO Masayoshi Son, made nine of 15 outbound deals valued at over 100 billion yen. (Photo by Ken Kobayashi)

TOKYO -- Corporate Japan's total number of overseas acquisitions surged nearly 30% in the first half of 2019, with tech conglomerate SoftBank Group doing much of the heavy lifting.

Japanese companies struck 434 foreign deals from January through June, including initial capital participation and investment increases, marking the fourth straight record-setting first half. Data compiled by M&A consultancy Recof shows there were 15 outbound deals valued at over 100 billion yen ($927 million), and SoftBank accounted for nine of them.

During the same period last year, SoftBank made four of the 14 deals that were worth more than 100 billion yen.

SoftBank directly injected $2 billion into co-working space startup WeWork, while its $100 billion tech investment vehicle, the Saudi-backed SoftBank Vision Fund, pumped $1.46 billion in new funding into Singaporean ride-hailer Grab. The fund also spent $1.5 billion on China's Chehaoduo Group, which runs a used-car trading platform. And SoftBank was among the investors that poured $1.25 billion into U.S. satellite broadband startup OneWeb.

Yet SoftBank did not make the biggest overseas deal of the half. That distinction belongs to Mitsubishi UFJ Financial Group and its consolidated subsidiary MUFG Bank, which announced an acquisition of the aviation finance business of DVB Bank under German lender DZ Bank.

The purchase, at a price of around 700 billion yen, will give the Japanese company a chance to diversify its business portfolio and expand beyond domestic banking operations. In a statement, Masato Miyachi, the group's senior managing executive, called aviation finance "a key growth pillar for MUFG."

MUFG headquarters in Tokyo. The banking group's $6 billion-plus acquisition of the aviation finance business of DVB Bank was the largest M&A deal in Japan in the first half of 2019. (Photo by Akira Kodaka)

Meanwhile, Japan's largest manufacturer of paints and coatings, Nippon Paint Holdings, is set to acquire Australia's biggest paint maker, DuluxGroup, for 300 billion yen.

Nippon Paint already generates 50% of its sales from Asia outside Japan, mainly China. But it decided to buy Dulux to further extend its reach into Oceania and diversify its revenue sources.

Industrial conglomerate Hitachi announced in April plans to buy U.S. robotic system integrator JR Automation Technologies, which specializes in creating production and logistics systems using industrial robots, for $1.42 billion. Hitachi hopes to expand its internet of things business through the purchase.

Despite global uncertainties like the U.S.-China trade war and a souring relationship between Tokyo and Seoul, Japanese companies are showing no signs of slowing their foreign acquisitions.

"More and more Japanese companies are starting to re-evaluate their business portfolios with aims to strengthen growth areas and become global leading companies," said Yuko Yoshitomi, president of Recofdata. "M&A deals have become a core strategy necessary for meeting that goal."

Outside pressure from investors, especially after Japan's corporate governance code was implemented in 2015, has also prompted many companies to focus on capital costs and expand globally.

Yoshitomi said that "if this pace continues for the latter half of the year, outbound deals will likely log a record high in 2019." Last year, overseas M&A deals reached 777.

Japanese companies are not just buying more -- they are buying more in Asia. Of the 434 first-half deals, nearly 37% were for Asian companies while around 30% of the targets were in the U.S.

In Asia, countries like Singapore, China including Hong Kong, and India were the most targeted. Tryfunds, which runs online investment matching platform Bizit M&A, has noticed an increase in inquiries about deals in Southeast Asia.

"The middle-income class is growing in the region, therefore many Japanese companies wish to obtain a local client base via company acquisitions," a spokesperson for Tryfunds explained.

The platform operator has been fielding questions from companies looking for information on potential acquisitions in Vietnam, in particular, as well as India. "Japanese firms are looking at Vietnamese companies in the logistics and food industry, while for India many companies are interested in the IT field," the representative said.

M&A activity is brisk within Japan as well. Total deals, including inbound acquisitions and domestic transactions, numbered a record 2,082 in the first half, up nearly 16% on the year, according to Recof. The consultancy said that if this pace continues, 2019 will see an estimated 4,500 M&A moves, marking a roughly 17% increase from 2018.

Yet, the results in many cases have been middling, suggesting that the ambition to expand globally needs to be coupled with sound post-acquisition strategies.

A recent survey on cross-border M&A activity by PwC Consulting in Tokyo revealed that only 12% of Japanese companies stated that the financial performance of businesses they acquired had exceeded initial expectations. On the other hand, 36% said the results had been worse than expected.

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