TOKYO Reuters this week invited three veteran M&A advisers to discuss corporate consolidation in Japan and what role this may play in the wake of the March 11 disaster.
On the panel were: Keiji Miyakawa, a former Deutsche Bank banker and Chairman of Lincoln International; Masaru Shibata, partner at Crosspoint Advisors and former M&A banker at J.P. Morgan, Lehman and Goldman; and Kenneth Siegel, who heads the Tokyo office of law firm Morrison & Foerster.
A selection of their comments are below (For a related Reuters Insider television report titled "Japan Inc Hunts Abroad for Growth" click on link.reuters.com/pys22s): On the post-quake appetite for overseas acquisitions:
"Surprisingly unchanged in our experience. We expected that there would be much less interest going out until the situation was more stable and predictable in Japan. Historically, any kind of uncertainty stops M&A. In this case, it's accelerated M&A in some respect, because it's now clear that the domestic market is going to contract a little more.
It's the pre-existing theme of Japan not being big enough for the companies that are here. Toshiba-Landis (Toshiba's $2.3 billion purchase of Landis+Gyr) happened a week after the earthquake. They were done in a month. No hesitation, no change in the corporate approach." -- Siegel
"Blue Chip companies may be unaffected. But I had a couple of situations where merger talks were suspended. The reason was the lack of management resources that were able to pay attention to strategic transactions (post-disaster).
I had some middle-market clients who were in discussions, and a few weeks later, the CEO said 'we have to pay attention to the domestic situation. We have to shift our attention to restructuring. It's not the availability of money that's affected this. It's the availability of human resources that they have available." -- Shibata On active sectors:
"The five most active areas will be: food, healthcare, energy, IT services and chemicals. Those five industries are not really domestic merger targets but more outbound M&A.
A lot of the deals will be related to the earthquake, and the shortage of power supply will prompt companies going abroad, and to shift production abroad." --Miyakawa On consolidation within Japan:
"That's been surprisingly quiet. Japanese law firms got very big in the mid 2000s to accommodate big domestic M&A. And then it just stopped two to three years ago, even before Lehman.
"Those companies (some large, Japanese industry majors) are between a rock and a hard place. Because they can't do domestic consolidation because there's monopoly problems, market share problems. And they don't have the management capability for outbound transactions. They don't have a deep enough bench to manage companies. They need to get more internationalized here in preparation." -- Siegel
"Historically, domestic M&A in Japan comes from a situation where companies have to do it. Banks are a good example, where at one point they had to strike a merger to survive. They need to be incentivized to compete globally." -- Shibata
"That's been the issue for the last 20 years. Outbound, OK, but domestic, there's a problem. There's an "M" market within Japan but not an "A" market.
Typically M&A generates a lot changes in a company. When Japanese companies merge, they tend to stick to who they are. They don't change. That's why the merger of a holding company is a problem." -- Miyakawa On private equity capital flows:
"PE needs two things. Supply of companies, and a good market where they can exit. You have to have the cover of the economy and capital markets. In Japan - around 1999, 2000 - they were able to acquire companies out of distress where the government had the leadership to push banks to liquidate.
There was a supply there. There was a supply for the risk money to come in. We don't have that kind of situation today. No matter how many people say that Japan is a quasi distressed situation, the economy not doing well, there is no liquidity. We don't have that climate in the capital markets." -- Shibata On post quake opportunities:
"In sectors like energy, there could be some fabulous stimulus that could come from this to get them into clean tech.
They could create an opportunity for companies to come in with new technology and diversify it against the monopoly and encourage new investment." -- Siegel
"There is proven (renewable) technology. But the clients (he presented a Japan renewable idea to) weren't interested unless they knew there was government support." -- Shibata
"I'm really interested in what happens with TEPCO. It's a monopoly system. It's a great opportunity to break up the monopoly." -- Miyakawa
(Compiled by Michael Flaherty; Editing by Timothy Kelly)