TOKYO -- Investors here are carefully assessing the quality of corporate acquisitions in the wake of Toshiba's disastrous purchase of Westinghouse Electric.
Tokyo stocks headed south Tuesday, weighed down in part by Toshiba's twice-delayed release of unaudited April-December results. The Nikkei Stock Average slid 50 points to 18,747.
Despite the gloomy market, Koshidaka Holdings caught investors' attention as the karaoke room operator's shares surged more than 4% to a roughly 2-year high at one point. Kobayashi Pharmaceutical and Japan Tobacco rose as much as 0.9% and 0.5% during the session, while commercial refrigerator maker Hoshizaki climbed 2% to the highest in more than two months.
These companies are all getting high marks as successful acquirers.
Since its IPO in 2007, Koshidaka has been purchasing companies -- mostly ones sold at bargain prices because of management troubles -- and branched out into fitness gyms and hot springs. Koshidaka is also quick to dump operations that are not a suitable fit, pulling out of the bowling alley business it had taken over from trading house Mitsui after just two years. Koshidaka shares are up 36.4% so far this year, compared with the Nikkei average's 1.9% decline.
Hoshizaki is known for its aggressive investments overseas, having taken stakes in five companies in such markets as India and China over the last five years. It has a rigorous screening process and will not buy unless the target clears its strict criteria in such areas as profitability and operational scale, according to a company official. This is why Hoshizaki has won praise from market pros -- with a fund manager at a Japanese asset company saying the ice machine maker is "skillful at acquiring small yet high-quality targets."
Ryota Sakagami of JPMorgan Chase says overseas investors have been contacting him about M&A trends in Japan. Many companies here continue to look for cross-border takeovers for industry realignment and overseas expansion. But the news of Toshiba's massive losses in its nuclear power business has served as a reminder for investors that they must carefully examine individual companies' plans.
M&A deals are growing pricier, heightening the possibility that takeovers gone wrong could seriously erode a company's finances. Japanese buyers paid $60.36 million on average to buy another company in 2016, up 40% from three years earlier, according to data from Dealogic. Some companies' stocks have remained sluggish after their megadeals, including Citizen Watch. With share prices remaining lofty following a market rally, concerns are growing that a buyer might make a mistake and step into a bad deal.
Takeovers are an essential corporate tool for beating the competition. If used wisely, acquisitions translate into corporate growth after three to five years, said Kenichi Kubo at Tokio Marine Asset Management. The key going forward will be how businesses and investors apply the lesson of Toshiba's mistake.